FILED DEC 19 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. AZ-23-1050-LCF EARLE’S CUSTOM WINES, INC., dba Yuma’s Main Squeeze, Bk. No. 0:17-bk-00797-SHG Debtor.
JIM D. SMITH, Appellant, v. MEMORANDUM* UST-UNITED STATES TRUSTEE, PHOENIX, Appellee.
Appeal from the United States Bankruptcy Court for the District of Arizona Scott H. Gan, Bankruptcy Judge, Presiding
Before: LAFFERTY, CORBIT, and FARIS, Bankruptcy Judges.
INTRODUCTION
Jim D. Smith, trustee of the chapter 71 estate of Earle’s Custom Wines,
Inc., was employed to serve as attorney for the estate with the approval of
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, and “Rule” references are to the Federal Rules of Bankruptcy Procedure. 1 the bankruptcy court. Smith later filed a fee application seeking attorney’s
fees of $10,980, incurred during his administration of the estate. Based on
the U.S. Trustee’s (“UST”) opposition to the fee application and the
bankruptcy court’s independent analysis of the requested fees, the
bankruptcy court reduced the fees to $3,360. Smith appeals the reduction.
Seeing no error, we AFFIRM. 2
FACTS 3
A. The bankruptcy case and Smith’s activities
Earle’s Custom Wines, Inc. filed its chapter 7 petition on January 27,
2017. Smith was appointed trustee. Two weeks into the case, Smith filed a
two-page application to have himself appointed “attorney for the estate.”
Concurrent with the application, Smith filed a one-page declaration which
simply stated that he was a sole practitioner and had no conflicts. There
being no objections, the application was approved.
On February 17, 2017, Smith filed a two-page “Trustee’s Application
for Authority to Sell Personal Property at Private Sale.” In the application,
Smith requested permission to sell the “Remaining Restaurant and Bar
Equipment located in leased premises” which he estimated to have a value
2 This appeal was concurrently heard with three others: (1) Smith v. UST (In re Rivera), BAP No. AZ-23-1047-LCF; (2) Smith v. UST (In re Figueroa), BAP No. AZ-23- 1048-LCF; and (3) Smith v. UST (In re Banghart), BAP No. AZ-23-1049-LCF. These companion appeals are the subject of their own separate written decisions. 3 We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case and adversary proceedings. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 2 of $8,000 to $10,000. The application did not identify a buyer, nor did it
include a declaration or other evidence. As there were no objections, the
court approved it. About a month later, Smith filed a report of the sale
indicating he sold the equipment for $8,000.
On July 25, 2017, Smith filed a three-page adversary complaint
against Pinnacle Capital Partners, LLC seeking to avoid its alleged security
interest in a “table tap” wine dispenser on the basis that Pinnacle did not
perfect its interest by filing a UCC-1 (the “Pinnacle Litigation”). When
Pinnacle failed to answer the complaint, Smith filed a two-page motion for
entry of default, a two-page “statement of facts,” and a default judgment
which the court entered on September 25, 2017.
Also on July 25, 2017, Smith filed a four-page adversary complaint
against Yuma Industrial Buildings, LLC, the Debtor’s storage facility,
asserting that it refused Smith access to the premises and “may have
moved, sold or otherwise disposed of the business property which was
stored at the leased Warehouse Space” (the “Yuma Storage Facility
Litigation”). This matter was settled a few months later for $4,000, which
settlement the court approved.
Smith, in his capacity as trustee, addressed a number of other issues
typical of a commercial bankruptcy including the administrative rent with
the landlord, change of locks, release of an alleged landlord’s lien, a
security deposit issue, and investigation of potential recovery of other
assets.
3 The court clerk filed and served a Notice of Bar Date, and ultimately
a single proof of claim was filed on November 19, 2017, by an unsecured
creditor for $2,621.40.
B. The fee applications and UST’s objections
On December 23, 2019, Smith filed an “Application for Allowance of
Administrative Expense – and – Rule 2016 Disclosure.” The application
sought fees of $10,350 for 34.5 hours of work at $300 per hour and $26 for
costs. 4 Smith attached his billing statements which had category titles for
each entry but there was no summary of the time for each category, in the
application or the billing statements, and no correlation of the fees
requested to the value received for the estate. The application noted that if
there were no objections, Smith would reduce the amount of fees requested
to $8,000.5 There was no declaration to support the application.
The UST timely objected to Smith’s application, arguing that there
was improper lumping of time on specified time entries, and that Smith
should not be paid .8 hours for drafting and filing his own employment
application. The UST also objected to Smith’s proposed reduction in fees if
there were no objections to the fee application, arguing that the adjustment
was an attempt to circumvent the Supreme Court’s decision in Baker Botts
4 These fees are separate from, and in addition to, Smith’s right to a commission as a trustee under § 326(a), estimated by the UST to be $2,078 based on Smith’s Trustee Final Report (“TFR”). 5 It appears from the TFR that Smith had about $9,200 in his trust account at this
time. 4 LLP v. ASARCO LLC, 576 U.S. 121, 131 (2015), that an attorney may not be
paid for efforts responding to objections to the application.
There was no further activity on the fee application until
approximately nine months later, in October 2020, when Smith filed an
amended fee application which sought fees of $10,980 (a $630 increase
above the first application) for 36.6 hours (a 2.1 hour increase in time) at
$300 per hour (the “Amended Fee Application”). The Amended Fee
Application provided more detail in response to the UST’s lumping
objection and removed the voluntary reduction in fees. It replaced the 2.0
hour entry for preparation of the original fee application with a 2.5 hour
entry for preparation of the amended application. There was no other
explanation why the total time increased by 2.1 hours.
The UST objected again that the application still had inappropriate
lumping and that the application sought attorney’s fees for “the
performance of . . . trustee’s duties.” The UST specifically identified the
following categories of entries as inappropriate for reimbursement, arguing
the efforts were part of the trustee’s duties rather than an attorney’s duties:
1. Resolution of Administrative Rent Claim;
2. City of Yuma Street Sidewalk Lease Security Deposit Issue;
3. P.O. Sale Ownership Issue;
4. Landlord’s Lien/Building Fixtures Issue;
5. Access to Leased Premises & Landlord’s Lien;
6. Recovery of Wine Making Equipment;
5 7. A.P.S. Advance Deposit Matter; and
8. Business Equipment Recovery & Sale.
The objection did not specify the amount of fees requested for each of
the above categories but noted the specific time entries on Smith’s billing
statements to which it objected. The UST generally did not object to the
entries relating to preparation or filing of pleadings in the two adversary
proceedings.
Shortly thereafter, the bankruptcy clerk filed a preprinted
Memorandum to Case Trustee noting that there had been no activity in the
case for more than one year and that “it is unclear as to whether this case is
continuing to be administered or whether an appropriate final report
should be filed and the case closed.”
C. The hearings on Smith’s Amended Fee Application
Neither Smith nor the UST timely responded to the case
memorandum; rather seven months later the UST filed a “request for status
hearing regarding Memorandum to Case Trustee and United States
Trustee’s Objection to First Amended Application for Allowance of
Administrative Expenses – Attorney’s Fees,” noting that there was no
activity in this case and that the Amended Fee Application was pending.
Thereafter, the bankruptcy court set a status hearing which was heard on
August 4, 2022.6
This was a combined hearing for all four of the cases for which the Panel heard 6
argument on September 28, 2023. 6 At the hearing, Smith suggested that the bankruptcy court simply
rule on the outstanding fee application and the objection without further
hearings. The court invited Smith to file a response to the UST’s objection
but Smith demurred. The court then stated on the record that the matter
was submitted.
On September 8, 2022, the bankruptcy court entered its order
requiring simultaneous further responses from Smith and the UST and
setting a further hearing on the fee application. In its order, the court made
tentative findings including that six entries on Smith’s billing statements
“may be compensable for attorney’s fees, provided there is further
explanation from Mr. Smith[,]” suggesting that the remainder of the time
would be disallowed. (Emphasis added). The court ordered Smith to
explain the need for the “research” entries and to “de-lump” each entry so
it could “accurately determine the reasonableness of the fees requested.”
The court instructed Smith to respond to the UST objections as well as its
tentative findings.
As to the UST, the court ordered the UST to file a reply “describing
its procedure for identifying such violations when it reviews fee
applications and whether it uses the same procedure and scrutiny to
review fee applications by independent counsel as it does to review those
by trustees also serving as attorneys for the estate.”
7 Smith’s response noted that his “legal efforts” resulted in a recovery
for the estate of $5,250 (net) for the sale of the equipment, 7 $4,000 in the
Yuma Storage Facility Litigation, and $800 in the Pinnacle Litigation. Smith
offered a cursory response regarding the research he undertook but
repeated his position that all his time billed was for services “routinely
performed” by attorneys employed by chapter 7 trustees. The response
further complained that the UST was not objecting to the fees requested by
trustee Lawrence Warfield’s 8 attorney who “was paid over $800,000 in the
Year 2021 . . . for representing Chapter 7 Case Trustees in cases where
issues similar to this Case were made and litigated.”
Separately Smith filed a “Notice of Filing ‘De-Lump’ Time Entries as
Required by 9/8/2022 Court Order” in which he annotated in handwriting
his “lumped” time entries showing how much time was spent on the
multiple portions of each entry.
The UST’s response summarized its process for reviewing chapter 7
fee applications.
On November 1, 2022, the bankruptcy court conducted a second
hearing and advised the parties that its review of the supplemental
responses left it with questions and further concerns directed at both
parties. After lengthy colloquy between the court and the parties, the court
7 As noted, Smith sold the equipment for $8,000 and later paid the landlord $2,750 for administrative rent for a net of $5,250. 8 Apparently the only other chapter 7 trustee in the Yuma, Arizona area.
8 invited the parties to file further supplemental pleadings regarding its
specific concerns. The court requested “case law” from the parties that
differentiated a trustee’s efforts as trustee and those of trustee’s counsel.
The court stated that it wished to better understand the UST’s position on
that issue so that it could “more clearly set a standard . . . to apply across
the board.” As to Smith, the court asked him to “take a hard look” at his
time entries as some appeared to be administrative overhead expense.
Over Smith’s objection, the court set an evidentiary hearing in December.
Subsequently, the UST filed a further memorandum which
essentially repeated its earlier recitation of its procedures regarding fee
applications. It attached numerous exhibits containing turnover motions
filed by trustees without counsel arguing that this type of turnover action is
routinely done by trustees without counsel.
Smith filed a list of thirty-four “recent” cases purporting to establish
that “the Attorney for the Chapter 7 Trustee was compensated (without
objection) for services which the U.S. Trustee now claims are services that
must be provided by the Chapter 7 Trustee, not an Attorney.” The list
contained some details about each case and a “[d]escription of the work”
but contained no analysis or statement by Smith establishing a direct
relationship between those cases and his case nor showing any relevance to
the tasks Smith performed.
On December 20, 2022, the bankruptcy court conducted an
evidentiary hearing at which Smith testified and was cross-examined.
9 Smith testified summarily that “this was a difficult business case.” He
noted that it was a no-asset case from the beginning with numerous issues
which his efforts resolved. On cross-examination, Smith continued to insist
that he hired himself to do the legal work because “legal issues were
presented” and that all his time represented work typically performed by a
trustee’s attorney, not the trustee.
D. The bankruptcy court’s ruling on the Amended Fee Application
The bankruptcy court issued its Ruling on United States Trustee’s
Objection to Jim Smith’s Attorney Fee Application on February 21, 2023
(the “Memorandum”). In the Memorandum, the court specifically ruled on
each line item in Smith’s timesheets, about 120 entries in total. The court
concluded that twelve of the line items were compensable as attorney’s fees
and the remainder were not. The most common reason for the
disallowance was that the entries were “tasks routinely performed by
trustees without counsel assistance” or because Smith “failed to
demonstrate” how the efforts in the time entry “required legal expertise.”
The court separately categorized forty-four entries for the two adversary
proceedings and allowed one entry for the Yuma Storage Facility Litigation
(.3 hours for research re service on a foreign LLC), and four for the Pinnacle
Litigation (2.3 hours in total). As to the 3.3 hours for the employment and
fee applications, the court allowed that time, stating that the time was
compensable “as it is routine in this district for attorneys for the estate to
request compensation for preparing . . . the applications.” The court
10 allowed 5.3 additional hours for various other tasks it deemed appropriate
for counsel for the trustee. It disallowed everything else.
The bankruptcy court concluded that the disallowed “services were
neither reasonable nor necessary.” It stated, “Smith . . . failed to
demonstrate how any of those services performed involved legal expertise
beyond the duties routinely performed by trustees without counsel
assistance.” It further noted that the reduction “is warranted based on [the
court’s] review for reasonableness and necessity and the anticipated return
to creditors in this case.” The court reduced the attorney’s fees requested
from $10,980 to $3,360.
Smith timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion in reducing the
trustee’s attorney’s fee request from $10,980 to $3,360?
STANDARDS OF REVIEW
We review for abuse of discretion a bankruptcy court’s order
awarding compensation to an estate professional under § 330. Hopkins v.
Asset Acceptance LLC (In re Salgado-Nava), 473 B.R. 911, 915 (9th Cir. BAP
2012). We will not disturb a bankruptcy court’s award of attorney’s fees
“absent an abuse of discretion or an erroneous application of the law.” In re
11 Nucorp Energy, Inc., 764 F.2d 655, 657 (9th Cir. 1985); see also Dawson v.
Wash. Mut. Bank F.A. (In re Dawson), 390 F.3d 1139, 1145 (9th Cir. 2004).
Factual findings made in the course of awarding compensation are
not disturbed unless clearly erroneous. See Friedman Enters. v. B.U.M. Int'l,
Inc. (In re B.U.M. Int'l, Inc.), 229 F.3d 824, 830 (9th Cir. 2000). A finding is
not “clearly erroneous” unless, based on the entire evidence, the reviewing
court is left with the definite and firm conviction that a mistake has been
committed. United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948).
We may affirm on any basis supported by the record. Black v. Bonnie
Springs Family Ltd. P'ship (In re Black), 487 B.R. 202, 211 (9th Cir. BAP 2013).
DISCUSSION
In his opening brief, Smith cites three specific issues to be resolved in
this appeal: 1) were the bankruptcy court’s conclusions disallowing the fees
“legally correct?”; 2) did the bankruptcy court err in finding that it was
Smith’s “burden of proof to establish each and every time entry was
compensable and that the objecting party (U.S. Trustee) did not have any
burden of proof?”; and 3) did the UST provide any evidence to support its
position?9
9 Smith does not argue for reversal on the basis that the UST targeted him by objecting to his fee application while at the same time not objecting to similar fee applications by other trustees. That issue is therefore waived and not discussed herein. Maloney v. T3Media, Inc., 853 F.3d 1004, 1019 (9th Cir. 2017) (issue not argued in briefs is waived). 12 There are reasons why a court of appeals defers to the trial court,
especially when reviewing attorney’s fee applications. Fundamentally, the
Bankruptcy Code and cases interpreting § 330 make clear that the trial
court has an independent obligation, whether a party objects or not, to
review, critique, and reduce the fees requested if necessary using the given
standards. See In re Crown Orthodontic Dental Grp., 159 B.R. 307, 309 (Bankr.
C.D. Cal. 1993); see also Law Offices of David A. Boone v. Derham-Burk (In re
Eliapo), 298 B.R. 392, 399 (9th Cir. BAP 2003) (stating that the court has
“wide discretion in determining reasonable and necessary fees under
§ 330(a)”), aff’d in part, rev’d in part and remanded by 468 F.3d 592 (9th Cir.
2006). 10
10 Section 330(a) states in relevant part: (a)(1) [The bankruptcy court may award] – (A) reasonable compensation for actual, necessary services rendered by the . . . attorney . . . employed by [the trustee]; ... (2) The court may . . . award compensation that is less than the amount of compensation that is requested. (3) In determining the amount of reasonable compensation to be awarded . . . the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including— (A) the time spent on such services; (B) the rates charged for such services; (C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; (D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; (E) with respect to a professional person, whether the person is 13 The basis for the extremely deferential standard is that the
bankruptcy court is uniquely in the best position to assess the amount of
work done, its contribution to the administration of the estate, and its
benefit to the stakeholders; and thus, to determine the appropriate amount
of fees. See Phillips v. Gilman (In re Gilman), CC-18-1101-STaL, 2019 WL
3074607, at *4 (9th Cir. BAP July 12, 2019) (“It is uniquely the province of
the bankruptcy court to determine the level of review and the basis for
critique in fee review, and a reviewing court should defer as thoroughly to
that decision by the bankruptcy court as it would to any other decision
concerning reasonableness of fees[.]”) (citations omitted), aff'd, 836 F. App’x
511 (9th Cir. 2020). The skill requisite to achieve those results may be much
more obvious in mid-size or larger cases of some complexity than they may
be in cases such as the one before this Panel where there is very little
activity and the court simply does not have the same opportunity to assess
the nature of the work or whether it was actually necessary.
These cases represent exactly that dilemma. While we do not suggest
that in every small case the court should schedule a hearing to probe the
board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and (F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title. (4)(A) . . . the court shall not allow compensation for— (i) unnecessary duplication of services; or (ii) services that were not— (I) reasonably likely to benefit the debtor’s estate; or 14 necessity of employing counsel, neither do we accept the proposition that
the court must rely on the general assertion by the trustee in the
employment application regarding the need for attorney assistance as
establishing that any particular services actually rendered required the
expertise of counsel.
The Bankruptcy Code requires the trustee to do his or her own work;
this requirement sometimes creates a tension in small cases like these
between the work that should be done by the trustee and that which
genuinely requires the assistance of an attorney. Therefore, it is not
surprising that the only meaningful review of the fees in small cases occurs
at the end of the case, and may frequently be predicated on an objection, or
the court’s independent concern, that the services for which compensation
is requested do not rise to the level of tasks for which the expertise of an
attorney was required.
A. The bankruptcy court properly ruled that Smith had the burden of proof to establish that his requested compensation complied with the Bankruptcy Code. Smith’s principal argument is that the party objecting to an
application for compensation has the burden of proof to show that fees are
unreasonable or unnecessary, citing Koncicky v. Peterson (In re Koncicky),
BAP No. WW-07-1170-MkPaJ, 2007 WL 7540997 (9th Cir. BAP Oct. 19,
2007). We agree that a party objecting to the fees must establish that the
(II) necessary to the administration of the case. 15 fees are unreasonable. But we do not agree that the burden of the objecting
party somehow relieves the professional from its burden to establish that
its requested fees are reasonable in the first instance. In Koncicky, the debtor
objected to the Trustee’s Final Report including the requested fees and
costs. The bankruptcy court overruled the objection on the basis that the
debtor offered no factual or legal basis for reversal. Id. at *1. The Panel in
Koncicky noted that the record contained ample evidence to support the fee
award and affirmed the ruling.
Neither Koncicky nor any other authority creates a presumption in
favor of the trustee which can only be overcome by objection to the fee
application. The Bankruptcy Code permits a court to award fees to the
trustee as attorney but “only to the extent that the trustee performed
services as attorney . . . for the estate and not for performance of any of the
trustee’s duties that are generally performed by a trustee without the
assistance of an attorney . . . for the estate.” See § 328(b).11 The court is
required to find that the fees are reasonable and only for services actually
and necessarily rendered. See § 330(a). The Bankruptcy Code requires the
court to “tak[e] into account all relevant factors” including whether the
11 Section 328(b) states in relevant part: (b) If the court has authorized a trustee to serve as an attorney . . . for the estate under section 327(d) of this title, the court may allow compensation for the trustee’s services as such attorney . . . only to the extent that the trustee performed services as attorney . . . for the estate and not for performance of any of the trustee’s duties that are generally performed by a trustee without the assistance of an attorney . . . for the estate. 16 services were “beneficial at the time at which the service was rendered”
and “reasonably likely to benefit the estate.” § 330(a)(3) and (4).
Smith asks the Panel to find that his fees were appropriate solely
because the UST did not establish that the fees were inappropriate. That
standard would stand the statute on its head. The burden is on the party
requesting allowance of the fees to establish that the requirements of the
Code have been met. See In re McKenna, 93 B.R. 238, 242 (Bankr. E.D. Cal.
1988); In re Gary Fairbanks, Inc., 111 B.R. 809, 811 (Bankr. N.D. Iowa 1990)
(“The burden is on the trustee to demonstrate that services for which
attorney’s fees are sought are not duties generally performed without the
assistance of counsel.”). In In re King, 546 B.R. 682, 697 (Bankr. S.D. Tex.
2016), the court stated, “[w]here insufficient explanatory information is
provided for determining the precise nature of the services rendered, the
[C]ourt is compelled to determine that the services are not compensable as
legal services.” (Citation omitted) (alteration in original).
Smith also obliquely complains that, even if it is his burden of proof,
he should not have to support “each and every time entry.” We disagree.
Section 330(a) does not modify the professional’s or the court’s duties
based on the size of the time entry. Smith cites no authority to support his
position.
In the last analysis, the bankruptcy court reduced the requested
attorney’s fees, as it is expressly permitted to do in § 330(a)(2), because
Smith failed to offer sufficient evidence that the fees were reasonable and
17 necessary under the requirements of § 330(a).12 There is no erroneous
application of the law on this issue.
B. The bankruptcy court did not abuse its discretion in disallowing the requested compensation. 1. There was insufficient evidence to permit the bankruptcy court to find that the services were reasonable and necessary. Section 330 requires that an applicant establish that the fees incurred
were reasonable and necessary as the bankruptcy court correctly ruled.
Smith’s application simply does not demonstrate adherence to that
standard.
Smith asserts to the Panel that his “[d]eclaration and testimony” in
support of the Amended Fee Application established that all of his time
entries “were legal services, which are routinely performed by Attorneys
employed in Chapter 7 Cases . . .” However, Smith’s Amended Fee
Application contained no separate declaration ascribed under penalty of
perjury supporting the proposition that the fees he incurred were
reasonable and necessary within § 330. And his response to the UST
objection contained his short declaration which simply concluded that “in
[his] legal opinion,” the services performed were “not duties which are
required to be performed by a chapter 7 Trustee[.]” He offered no
12 We note that the bankruptcy court referenced in its Memorandum that, for each time entry disallowed, the UST objection was sustained, even though the UST did not specifically object to some of the time entries. Because the bankruptcy court is required to make an independent determination of the allowability of each entry, we treat any error as harmless. 18 evidentiary support for that position beyond his bare conclusory
statements. His testimony at the evidentiary hearing was no more than
that; a few conclusory comments of the work he did and his belief that he
should be paid for it.
In his opening brief, Smith set forth ten pages of “specific examples of
disallowance where the findings and conclusions are illogical, implausible
and without support in the record.” These “examples” and the related
explanations were not included in Smith’s pleadings to the bankruptcy
court nor in his testimony at the evidentiary hearing, certainly not with the
specificity laid out in the brief.
Smith failed to provide any such specificity to the bankruptcy court
and thus the factual arguments he seeks to make now could not be
evaluated by the court, and it is improper for Smith to raise these factual
issues before this Panel. “A litigant may waive an issue by failing to raise it
in a bankruptcy court.” Mano-Y & M, Ltd. v. Field (In re Mortg. Store, Inc.),
773 F.3d 990, 998 (9th Cir. 2014). “There is no bright-line rule to determine
whether a matter has been properly raised. A workable standard, however,
is that the argument must be raised sufficiently for the trial court to rule on
it.” O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957
(9th Cir. 1989) (internal citations omitted).
The bankruptcy court’s ruling does not leave us with a definite and
firm conviction that a mistake has been committed.
19 2. There was insufficient evidence to permit the bankruptcy court to find that the disallowed services required special expertise. The UST’s main objection to the Amended Fee Application is that the
services performed by Smith purportedly as the trustee’s attorney were
services which the trustee would generally undertake. Section 328(b)
unambiguously requires that the fees awarded to an attorney representing
a trustee in a bankruptcy case must not include any time for “performance
of any of the trustee’s duties that are generally performed by a trustee
without the assistance of an attorney . . . for the estate.”
Section 704 sets forth the trustee’s duties which include collecting
and reducing to money the property of the estate, investigating the
financial affairs of the debtor, examining the proofs of claim with a view
toward objecting to allowance, and preparing the trustee’s final account.
The role of counsel for the trustee is to perform those tasks that require
special expertise beyond that expected of an ordinary trustee. “Only when
unique difficulties arise may compensation be provided for services which
coincide or overlap with the trustee’s duties and only to the extent of
matters requiring legal expertise.” Ferrette & Slater v. U.S. Tr. (In re Garcia),
335 B.R. 717, 725 (9th Cir. BAP 2005) (quotation marks and citation
omitted). Attorneys must therefore present sufficient evidence including
billing records with enough detail to establish that the services rendered
went beyond the scope of the trustee’s statutory duties and involve unique
difficulties. Id. at 727. The cryptic descriptions in the billing statements 20 provoked the court’s concern about Smith’s dual role in this case. Even the
bankruptcy court’s entreaties to Smith before the evidentiary hearing did
not prompt Smith to adequately explain why the tasks required attorney
expertise. Smith’s failure to adequately explain the context of the time
entries prevented the court from making the required findings in Smith’s
favor.
Many of the line entries in Smith’s billing statements are trustee’s
duties; that cannot be reasonably disputed. Such time entries include, for
example, meeting with the landlord to change the locks, discuss the
delinquent rent and other issues (.9); meeting with the landlord to resolve
administrative rent (.7); discussion with the utility company re the security
deposit (.9); meet with Fred Earle regarding equipment and the storage
facility (1.0); and negotiations with the buyer of the equipment (1.3) which
are all duties similar to the types of duties typically performed by trustees.
Smith offers no explanation about why those tasks would require expertise
beyond that of the usual chapter 7 trustee.
In addition, many of the line entries are tasks usually completed by
office staff. Smith’s billing statements include numerous entries of
preparing affidavits of service and notices of various types, reviewing the
docket, serving copies of various pleadings and documents. These tasks do
not require the special expertise of a bankruptcy attorney with forty years’
experience. Smith’s failure to concede even a single entry undercuts his
sincerity in insisting that none of the work was trustee work.
21 There is nothing in the record that would support a finding that the
efforts disallowed by the bankruptcy court required expertise beyond that
expected of an ordinary trustee. It is not clear error to find that these and
similar entries are efforts Congress intended to be undertaken by the
trustee and compensated under § 326(a).
3. Section 330 implicitly requires counsel to exercise billing discretion; therefore, the bankruptcy court properly considered the anticipated return to creditors standard when disallowing the time and fees. Beyond the literal language that the services must be reasonable and
necessary to be compensable, “[p]rofessionals have an obligation to
exercise billing judgment.” Lobel & Opera v. U.S. Tr. (In re Auto Parts Club,
Inc.), 211 B.R. 29, 33 (9th Cir. BAP 1997). Having an attorney perform a task
does not compel a finding that the fees were necessary per se, and we
implicitly rely on the trustee to exercise appropriate discretion before
burdening the estate, and in particular a small estate, with attorney’s fees
where the task might well have been performed by the trustee.
The “actual and necessary” prong of § 330(a)(1) requires the trustee
to consider the potential for recovery and balance the effort required
against the results that might be achieved. See Unsec. Creditors' Comm. v.
Puget Sound Plywood, Inc. (In re Puget Sound Plywood, Inc.), 924 F.2d 955, 961
(9th Cir. 1991) (“Absent unusual circumstances, an attorney must scale his
or her fee at least to the reasonably expected recovery.”).
22 Smith offered no explanation as to why having an attorney do many
of the tasks was required to monetize what was obviously going to be a
simple and nominal recovery for the estate. Smith offered no evidence that
he considered the potential for recovery and did any balancing assessment
before incurring attorney’s fees. That was his burden, and we cannot
second guess the bankruptcy court’s finding that the expertise of an
attorney was not necessary. Smith’s blind insistence that it was
compensable professional time because he said so is not sufficient to satisfy
the requirements of the Bankruptcy Code.
CONCLUSION
For these reasons set forth above, we AFFIRM.