In re: Jon Michael Driscoll and Christine Quigley Driscoll

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: February 6, 2014
• Docket: AZ-12-1499-PaKuD
• Status: Unpublished

Opinion

FILED 2/6/2014 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. AZ-12-1499-PaKuD ) 6 JON MICHAEL DRISCOLL and ) Bk. No. 09-08577-RTB CHRISTINE QUIGLEY DRISCOLL, ) 7 ) Debtors. ) 8 ______________________________) ) 9 ELLETT LAW OFFICES, PC; ) RONALD J. ELLETT, ) 10 ) Appellants. ) M E M O R A N D U M1 11 ______________________________) 12 Argued and Submitted on January 23, 2014 13 at Tempe, Arizona 14 Filed - February 6, 2014 15 Appeal from the United States Bankruptcy Court for the District of Arizona 16 Honorable Redfield T. Baum, Sr., Bankruptcy Judge, Presiding2 17 18 Appearances: Ronald J. Ellett appeared for himself and for appellant Ellett Law Offices, P.C. 19 20 Before: PAPPAS, KURTZ and DUNN, Bankruptcy Judges. 21 22 23 1 24 This disposition is not appropriate for publication. 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 2 27 Judge Baum entered the order we review on appeal. Due to his retirement from full-time service, the Honorable Eddward 28 Ballinger Jr. is now the presiding judge in the bankruptcy case. 1 Appellants Ellett Law Offices, P.C., and attorney Ronald J. 2 Ellett (collectively, “Ellett”), appeal the order of the 3 bankruptcy court granting Ellett’s Amended First Application for 4 Attorney’s Fees in the reduced amount of $1,750.00, rather than 5 the $5,000 requested. We VACATE the bankruptcy court’s order and 6 REMAND this matter for further proceedings. 7 FACTS 8 Debtors Jon and Christine Driscoll filed a petition for 9 relief under chapter 133 on April 27, 2009; they were represented 10 by Ellett. Debtors’ Schedule D listed four secured claims 11 totaling $639,882.78, and their Schedule F listed thirty-one 12 unsecured claims totaling $328,669.22. Jon Driscoll is a 13 mortgage broker, and Christine Driscoll is a crisis counselor. 14 Debtors timely filed a chapter 13 plan on May 8, 2009. In 15 paragraph 1, addressing administrative expenses, the plan 16 recites: 17 Attorney Fees: Debtors’ attorney was paid $1274.00 prepetition. Further, Debtors’ attorney shall be paid 18 an additional $3,726.00 as a minimum fee for this pending case prior to commencement of payments on any 19 claim listed hereafter. The services rendered for this minimum fee include up to the first 7.6 hours of all 20 consultations, telephone conversations and correspondences with debtors necessary to confirm 21 debtors’ initial Chapter 13 Plan, appearances necessary for confirmation of Debtors’ initial Chapter 13 Plan, 22 mailing and costs thereof of all necessary notices to confirm Debtors’ initial Chapter 13 Plan and 23 preparation and lodging of the order to confirm Debtors’ initial Chapter 13 Plan. Additional fees may 24 25 3 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 "Rule" references are to the Federal Rules of Bankruptcy Procedure. All “Civil Rule” references are to the Federal Rules 28 of Civil Procedure.

-2- 1 be charged by hourly fee pursuant to an executed bankruptcy fee agreement. 2 3 Chapter 13 Plan and Application for Payment of Administrative 4 Expenses at 1-2 (emphasis added). 5 A stipulated order confirming Debtors’ plan, submitted by 6 Debtors, the chapter 13 trustee, and the principal secured 7 creditor, modified this attorney fee provision, which order was 8 entered by the bankruptcy court on January 14, 2010: 9 Attorney’s Fees: Debtor’s attorney was paid $1274.00 prepetition. Further, Debtor’s attorney shall be paid 10 an additional $3,726.00 as a fee prior to the commencement of any payments on any claim listed 11 hereinafter. This award is for the first 8.1 hours of counsel’s time in this case. This award is without 12 prejudice to a future award based upon time in excess of 8.1 hours and a proper application for an additional 13 award of fees. 14 Stipulated Order, at 2 (emphasis added). Ellett admits that he 15 has received $5,000, in his words, “under the [bankruptcy 16 court’s] no look procedure.” Amended First Application for 17 Attorney’s Fees at ¶ 10 (the “Fee Application”). 18 Significant Events in the Bankruptcy Case 19 There were no adversary proceedings or contested hearings 20 conducted in the bankruptcy case. In addition to generally 21 assisting them in filing their bankruptcy case, and obtaining 22 confirmation of Debtors’ plan, Ellett’s activities focused on 23 three matters: valuing and stripping the lien of the second 24 mortgage holder on Debtors’ home; defending a motion for relief 25 from stay from the first mortgage holder; and a post-confirmation 26 modification of the plan. 27 In particular, through Ellett, Debtors filed a motion for 28 “Determination of Value of Claim Secured by Lien and Debtors’

-3- 1 Objection to Proof of Claim” of Wells Fargo Bank’s second 2 mortgage on their residence on October 7, 2009. Debtors argued 3 that the value of Wells Fargo’s secured claim was zero, insofar 4 as the value of the first lien of U.S. Bank was greater than the 5 value of the property. Wells Fargo did not contest the motion, 6 and the bankruptcy court granted the motion on January 1, 2010. 7 U.S. Bank filed a motion for relief from the automatic stay 8 to foreclose the lien on its first position Deed of Trust on 9 June 28, 2010. Debtors did not contest the relief from stay 10 motion. The bankruptcy court granted stay relief to the lender 11 on July 22, 2010. 12 In light of the grant of stay relief, Debtors then filed a 13 motion to modify the confirmed chapter 13 plan because of their 14 decision to surrender their residence. In a one-page motion, 15 Debtors proposed to reduce the number of monthly payments from 16 sixty to thirty-six, and to reduce the amount of the monthly 17 payments to the chapter 13 trustee, because they no longer needed 18 to service the mortgage. No party objected to the motion and the 19 bankruptcy court approved the plan modification on December 6, 20 2011. 21 The Fee Application 22 On February 27, 2012, Ellett filed the Fee Application. 23 Ellett provided an hourly billing record in the Fee Application 24 indicating he had provided services with a value of $16,467.00. 25 Two paragraphs of the Fee Application are noteworthy: 26 9. The confirmation order approved $3,750 under the “no-look fee” procedure but also provided that the 27 initial fee award was without prejudice to an additional fee award based on a detailed fee 28 application showing additional work performed in the

-4- 1 case. 2 10. The amount of the total attorney’s fees incurred in connection with this case is $16,467.00 (of this 3 amount, $5,000 was previously approved and paid under the no-look procedure). This leaves a balance of 4 $11,457.00. There are insufficient funds to pay these fees. Counsel is voluntarily writing his fees down by 5 $6,467.00. The balance to be paid is therefore $5,000.00. 6 7 Although there were no objections to the Fee Application, 8 the bankruptcy court contacted Ellett and instructed him to 9 schedule it for a hearing. Ellett filed a notice setting the 10 hearing for August 7, 2012. He also filed a supplement in 11 support of the Fee Application which contained argument and 12 affidavits supporting his requested hourly rate of compensation, 13 $495. 14 A transcript for the short hearing on the Fee Application is 15 included in the record. The substance of that hearing consisted 16 of an extremely brief colloquy among the bankruptcy court, Ellett 17 and Trustee’s counsel: 18 MR. ELLETT: I filed -- I was surprised [the Fee Application] was set for hearing. I'm not certain why, 19 but I filed a supplement that points out. I'm going to be awarded less than [$]325 an hour because I'm writing 20 off $6,000 in that case because there's not enough money to pay me. My clients can't afford to pay me, so 21 to the extent the hearing is about my hourly rate, I don't think that applies in this case because I'm 22 already writing off $6,000 -- over 6,000 in fees. 23 THE COURT: So, what will your total fee be in that case? 24 MR. ELLETT: A total fee would be [$]10,000 out of 16, 25 over [$]16,000 that was billed. Five has been approved already. I’m asking for additional five. 26 THE COURT: All right. Anything from the Trustee? 27 [TRUSTEE’S COUNSEL]: No, Your Honor. 28

-5- 1 THE COURT: All right. I'll take them both under advisement. 2 MR. ELLETT: Thank you. 3 (Proceedings Concluded) 4 5 Hr’g Tr. 1:15-21, August 7, 2012. 6 On September 12, 2012, the bankruptcy court entered a Minute 7 Entry/Order (the “Fee Order”). After a short discussion of the 8 amount sought by Ellett for fees and a review of Ellett’s 9 services, the order provided that “the court has carefully 10 reviewed the time records and entire record and concludes that 11 Ellett’s billings are excessive for the work performed.” In 12 arriving at this conclusion, the court focused on three items: 13 (1) the lien strip of the second deed of trust; (2) the stay 14 relief motion; and (3) the modified plan. 15 The bankruptcy court indicated that its website procedures 16 page informed attorneys and parties that the court ordinarily 17 allows $500 for uncontested proceedings to avoid a junior 18 mortgage lien, and that this “$500 fee is based on the premise 19 that an uncontested lien avoidance is legally simple and often 20 done with form pleading with no required hearing.” The court 21 reviewed the Fee Application, and noted that Ellett had billed 22 $3,811.50 for services in connection with the motion to strip the 23 mortgage lien. The court concluded “that such amount for a 24 simple lien avoidance is grossly inflated and well out of the 25 range ($500-1500) of what is typically charged by bankruptcy 26 practitioners in this district for similar work.” The court 27 allowed $750.00. 28 As to Ellett’s time spent reviewing the stay relief motion,

-6- 1 the bankruptcy court determined that such services were 2 ordinarily assumed to be included in the no look fee. The court 3 noted that Ellett’s work on the modified plan was also minimal 4 because it was uncontested, and the motion to modify the plan was 5 a single page which addressed no difficult legal issues. 6 Ellett’s hourly billing for the stay relief and modified plan was 7 $1,485.00. The bankruptcy court concluded that reasonable 8 compensation for all these services was $1,000, which together 9 with the $750 allowed for the mortgage lien avoidance, amounted 10 to a total of $1,750 in compensation, in addition to the $5,000 11 no look fee, for a grand total of $6,750. Instead of the $10,000 12 Ellett had requested, this reduced amount of compensation was 13 approved. 14 Without seeking reconsideration, Ellett filed a timely 15 appeal of the Fee Order on September 26, 2012. 16 JURISDICTION 17 The bankruptcy court had jurisdiction under 28 U.S.C. 18 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 19 § 158. 20 ISSUE 21 Whether the bankruptcy abused its discretion in granting 22 Ellett’s fee application in a reduced amount. 23 STANDARD OF REVIEW 24 The bankruptcy court’s award of attorney’s fees is reviewed 25 for abuse of discretion. Smith v. Hale (In re Smith), 317 F.3d 26 918, 923 (9th Cir. 2002); Label & Opera v. U.S. Tr. (In re Auto 27 Parts Club), 211 B.R. 29, 32 (9th Cir. BAP 1997). We review the 28 legal premises a bankruptcy court employs in determining the

-7- 1 reasonableness of attorney’s fees de novo. Ferrand v. Conrad 2 Credit Corp., 244 F.3d 1145, 1147 (9th Cir. 2001). 3 A bankruptcy court abuses its discretion if it applies an 4 incorrect legal standard, or misapplies the correct legal 5 standard, or if its factual findings are illogical, implausible 6 or without support from evidence in the record. United States v. 7 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc). 8 DISCUSSION 9 Section 330(a)(4)(B) provides that: 10 In a chapter 12 or 13 case in which the debtor is an individual, the court may allow reasonable compensation 11 to the debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case 12 based on a consideration of the benefit and necessity of such services to the debtor and the other factors in 13 this section. 14 A professional seeking compensation under § 330 has the 15 burden of proving that the amount requested is reasonable. Law 16 Offices of David A. Boone v. Derham-Burk (In re Eliapo), 298 B.R. 17 392, 402 (9th Cir. BAP 2003) (“Eliapo I”), rev’d. in part on 18 other grounds, 468 F.3d 592 (9th Cir. 2006) (“Eliapo II”). The 19 bankruptcy court has an independent duty to review fee 20 applications of professionals for reasonableness. Eliapo I, 21 298 B.R. at 404-05; Mayer, Glassman & Gaines v. Washam 22 (In re Hanson), 172 B.R. 67, 74 (9th Cir. BAP 1994). This duty 23 arises even where, as here, there are no objections to the 24 professional’s application by the trustee, debtor or creditors. 25 In re Dorsett, 297 B.R. 620, 624 (Bankr. E.D. Cal. 2003). 26 Although Ellett raises several arguments in his brief to 27 support his position that the bankruptcy court erred in deciding 28 that the amount of compensation he requested in the Fee

-8- 1 Application for the services performed as Debtors’ counsel in 2 this case was excessive, we need not consider those arguments. 3 This is because we agree with Ellett that, under the facts of 4 this case, the bankruptcy court failed to afford Ellett a 5 meaningful opportunity to be heard and defend his fee request 6 and, therefore, the bankruptcy court’s order awarding reduced 7 fees must be vacated. As in many other districts, Arizona rules 8 provide that a chapter 13 debtor’s attorney may receive a 9 presumptively reasonable fee of up to $5,000 for his or her 10 services without the submission of a detailed fee application – a 11 so-called “no look” fee. Bankr. D. Ariz. Local R. 2083-11(a) & 12 (b)(2009, later modified). But counsel requesting approval for 13 compensation in addition to the no look fee must justify the 14 reasonableness of the amount requested in such an application. 15 See In re Allen, 2012 Bankr. LEXIS 314, at *2 (Bankr. D. Ariz. 16 January 25, 2012) (awarding a no look fee of $4,500 plus $500 for 17 “reasonable and fair” services in an adversary proceeding not 18 included in the no look fee rules). 19 Although the bankruptcy court is required under the Code to 20 limit a chapter 13 debtor’s attorney’s compensation to only such 21 amounts as are “reasonable” as provided in § 330(a)(4)(B), where 22 the bankruptcy court may have objections to a fee application 23 that might result in a reduction in the amount awarded, in 24 Eliapo II the Ninth Circuit has instructed courts to provide a 25 procedure whereby the applicant has a meaningful opportunity to 26 respond to the court’s concerns. Eliapo II, 468 F.3d at 603. In 27 Eliapo II, the Ninth Circuit examined implications of no look 28 fees and additional services in chapter 13 cases. An attorney

-9- 1 submitted a one-page fee application under the no look guidelines 2 in effect in the Northern District of California. The bankruptcy 3 court approved the first application without a hearing. The 4 attorney then submitted a second, supplementary application that 5 included both fees allowed under the no look guidelines and 6 additional fees. The bankruptcy court first scheduled a hearing 7 on the second application, but then took the fee request under 8 submission without a hearing when no objection was filed. The 9 court ruled on the second application without a hearing, allowing 10 some fees that were approved under the no look guidelines, but 11 disallowing other fees because the court felt that “extraordinary 12 circumstances” were required before the court would allow an 13 attorney to exceed the guidelines. Id. at 595. 14 On appeal, the Ninth Circuit held in Eliapo II that a 15 debtor’s attorney is entitled to “notice and a hearing,” as that 16 term is defined in § 102(1),4 before the bankruptcy court may 17 award counsel a reduced fee. 468 F.3d at 601. Specifically, the 18 Ninth Circuit concluded that: 19 The essential point is that the court should give counsel a meaningful opportunity to be heard. [citing 20 to Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 856 (3d Cir. 1994)]. The bankruptcy court should "apprise the 21 [fee] applicant of the particular questions and objections it harbors" and should give the applicant 22 "an opportunity to rebut or contest the court's conclusions." Id. at 846-47; see also In re Spillane, 23 24 4 § 102. Rules of construction 25 In this title-- (1) "after notice and a hearing", or a similar phrase-- 26 (A) means after such notice as is appropriate in the 27 particular circumstances, and such opportunity for a hearing as is appropriate in the particular 28 circumstances[.]

-10- 1 884 F.2d 642, 646-47 (1st Cir. 1989) (holding that cross-examination is not required in hearing on fee 2 application). Depending on the circumstances, the hearing requirement may be satisfied without oral 3 presentation of evidence and without oral argument. That is, the "hearing" requirement may, in appropriate 4 circumstances, be satisfied by written submission. All that is required is that the applicant be given "a 5 reasonable opportunity to present legal argument and/or evidence to clarify or supplement his Application." 6 [Citing Nelson v. Mickelson (In re Pfleghaar), 215 B.R. 394, 397 (8th Cir. BAP 1997)]; see also Busy Beaver, 7 19 F.3d at 846. 8 Id. at 603. 9 In this case, Ellett filed and served the Fee Application, 10 and no objections were filed. After a time, the bankruptcy court 11 requested that Ellett set the Fee Application for a hearing. At 12 the time he filed the notice of the hearing, he also filed a 13 supplement providing information to support his hourly billing 14 rate, and to remind the bankruptcy court that his fee request was 15 a significantly reduced one as compared to the amounts reflected 16 in the hourly billing records in the Fee Application. However, 17 before and during the hearing, the bankruptcy court gave Ellett 18 no insight, indeed no real clue, about the nature of its 19 concerns, other than inquiring with him at the hearing about what 20 the “total” amount of fees requested was to be. At no time did 21 the bankruptcy court indicate that, as opposed to focusing on 22 Ellett’s hourly rate reflected in the billing records, and as 23 discussed in Ellett’s submissions in the supplement, it might be 24 more generally concerned with the reasonableness of the total 25 fees Ellett had requested and, in particular, with the nature and 26 amount of services he provided as compared to those reasonably 27 required to represent Debtors in their case. 28 Eliapo II makes clear that the bankruptcy court enjoys

-11- 1 significant latitude in prescribing the type of proceedings used 2 to consider fee applications like Ellett’s: 3 We emphasize that the notice-and-a-hearing definition in § 102(1) is flexible and sensitive to context. 4 Chapter 13 fee applications are typically rather simple, even in cases where fees beyond the presumptive 5 no-look fees are sought. So long as fair notice and opportunity to be heard are afforded, the bankruptcy 6 court has considerable freedom to fashion procedures for notice and a hearing that are “appropriate in the 7 particular circumstances.” 11 U.S.C. § 102(1)(A). 8 468 F.3d at 602. 9 In this case, the bankruptcy court had an independent duty 10 to determine whether Ellett’s requested compensation was 11 reasonable. Moreover, the total amount Ellett was requesting for 12 representing Debtors, the time he spent performing services on 13 relatively routine, uncontested tasks, and the apparently 14 artificial $495 per hour rate he used in his application to 15 measure the value of those services in this simple chapter 13 16 case, were all factors which, we believe, justified the 17 bankruptcy court’s decision to scrutinize Ellett’s application 18 closely. However, as instructed by the Ninth Circuit in 19 Eliapo II, Ellett was entitled to advance notice about the 20 bankruptcy court’s concerns with his fee request so that he 21 could, in a meaningful and timely fashion, respond to those 22 concerns and defend that request. The approach taken here by the 23 bankruptcy court did not satisfy that standard and, therefore, 24 the Fee Order must be vacated and this matter remanded for 25 further proceedings in the bankruptcy court. 26 CONCLUSION 27 The bankruptcy court’s Fee Order is VACATED and this matter 28 is REMANDED for further proceedings consistent with this

-12- 1 memorandum.5 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 5 We emphasize that this outcome is dictated solely as a 25 result of our concerns with the procedure employed by the court. We express no opinion about the bankruptcy court's conclusion 26 that the amount Ellett requested in the Fee Application was 27 excessive in relation to the services he provided to Debtors, a topic the bankruptcy court is free to again examine after 28 appropriate notice and a hearing on remand.

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