In re Stephen A. GRIFFIN.
No. 2:02-BK-70245M.United States Bankruptcy Court, W.D. Arkansas, Ft. Smith Division.
September 11, 2003.*2 Cross, Gunter, Witherspoon & Galchus, PC, Fort Smith, AR, David G. Nixon, Nixon Law Firm, Fayetteville, AR, Diane Sexton, Attorney at Law, Fort Smith, AR, Frederick S. Wetzel, III, Frederick S. Wetzel, P.A., Little Rock, AR, John T. Lee, Attorney at Law, Siloam Springs, AR, Theresa L. Pockrus, The Nixon Law Firm, Fayetteville, AR, for Debtor.
Richard L. Cox, Hot Springs, AR, Richard L. Cox, U.S. Bankruptcy Trustee, Hot Springs, AR, for Trustee.
ORDER
On June 2, 2003, Mary McGehee, a creditor in this bankruptcy case, filed a proof of claim for $353,343.99. The debt evidenced by the claim is secured by a deed of trust executed by the Debtor, Stephen A. Griffin ("Debtor"), in 1999 to City National Bank of Fort Smith. The claim was later amended to be the sum of $371,446.49.
The Trustee filed an objection to the claim of Mrs. McGehee and a hearing was conducted at Hot Springs, Arkansas, on July 30, 2003. At the conclusion of the hearing, the Court sustained the Trustee's objection to the claim to the extent the total claim exceeded $304,260.09. The Court took under advisement the issue of the amount of legal fees that could be added to the allowed portion of the claim.
The matter before the Court is a core proceeding pursuant to 28 U.S.C. § 157 and this Court has jurisdiction to enter a final judgment.
The creditor, Mrs. McGehee, is the mother of Barbara Griffin, who is the Debtor's wife. On or about January 13, 2003, Mrs. McGehee, after consulting with Diane Sexton, her attorney, purchased the note payable to City National Bank of Fort Smith and took an assignment of the deed of trust. Mrs. McGehee paid $304,260.09 for the note, according to her testimony.
Mrs. McGehee testified that she purchased the note to help her daughter and son-in-law retain possession of a house on Lake Ouachita in Montgomery County, Arkansas.[1]*3 Mrs. McGehee stated that post petition, Barbara Griffin has paid her monthly rent equal to the ongoing accrual of interest on the note. She testified that she does not know the reason her claim is for more than $304,260.09 but that she relies totally on her counsel, Ms. Sexton, concerning these matters.
Filed by Ms. Sexton and introduced into evidence at the hearing on the Trustee's objection, the claim and the subsequent amended claim contain no documentation as proof of Mrs. McGehee's claim. At the hearing, the creditor demonstrated that some of the extra charges were for attorney fees but failed to show the basis for the remaining charges. The Trustee does not object to a secured claim in the amount of $304,260.09 and additional monies for reasonable attorney's fees, insurance, and accrued interest, to the extent these can be documented.
Ms. Sexton submitted a statement for attorney's fees for $17,071.20, which she argues should be allowed as part of Mrs. McGehee's secured claim. While the Trustee does not dispute that reasonable attorney's fees incurred in protecting Mrs. McGehee's interest are properly allowed as part of her secured claim, he argues that Ms. Sexton's application is unreasonable in amount. He contends that services charged were not performed to protect Mrs. McGehee's interest in the property or were not performed for the benefit of Mrs. McGehee at all. Therefore, the Court must examine Ms. Sexton's fee application.
Ms. Sexton's statement reflects the date of the first service performed for Mrs. McGehee was "12/30/03".[2] The Court file reflects that on February 18, 2003, Ms. Sexton appeared in this case on behalf of Barbara Griffin. On March 12, 2003, Ms. Sexton entered her appearance on behalf of Highway 71 South Liquors, Inc. On March 21, 2003, Ms. Sexton entered her appearance on behalf of the Chapter 7 Debtor, Stephen Griffin, but was later removed as attorney for the Debtor on motion of the Trustee. Ms. Sexton also represents Douglas Payne, a certified public accountant, who has a claim for administrative expenses.
The Bankruptcy Code provides in relevant part as follows:
To the extent that an allowed secured claim is secured by property, the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim . . . any reasonable fees . . . provided for under the agreement under which such claim arose.
11 U.S.C. § 506(b) (2000).
Section 506(b) allows the award of attorneys' fees to an oversecured creditor to the extent that its security agreement expressly provides for such fees. Dalessio v. Pauchon (In re Dalessio), 74 B.R. 721, 723 (9th Cir. BAP 1987); In re Mills, 77 B.R. 413, 417 (Bankr.S.D.N.Y.1987) (citing In re Elmwood Farm, Inc., 19 B.R. 338, 341 (Bankr.S.D.N.Y.1982)). However, entitlement is limited to reasonable fees. In re Dalessio, 74 B.R. at 723; In re Brunel, 54 B.R. 462, 464 (Bankr.D.Colo.1985) (citations omitted).
The applicant has the burden of proving entitlement to fees and the reasonableness of requested compensation. Brake v. Tavormina (In re Beverly Mfg. Corp.), 841 F.2d 365, 371 (11th Cir.1988) *4 (quoting In re U.S. Golf Corp., 639 F.2d 1197, 1201 (5th Cir.1981)); In re Meade Land & Dev. Co., 577 F.2d 858, 860 (3d Cir.1978); In re Villa Capri Assocs. Ltd. Partnership, 141 B.R. 257, 260 (Bankr.N.D.Ga.1992) (citing Norman v. Housing Authority, 836 F.2d 1292, 1303 (11th Cir.1988); In re Greenwich Showboat Ltd. Partnership, 117 B.R. 54, 60 (Bankr.D.Conn.1990)).
In determining reasonableness, bankruptcy law, rather than state law, governs. Blackburn-Bliss Trust v. Hudson Shipbuilders, Inc. (In re Hudson Shipbuilders, Inc.), 794 F.2d 1051, 1058 (5th Cir.1986); Pasatiempo Properties v. Le Marquis Assocs. (In re Le Marquis Assocs.), 81 B.R. 576, 578 (9th Cir. BAP 1987) (citing In re 268 Ltd., 789 F.2d 674, 677 (9th Cir.1986)). Reasonable fees allowable under 11 U.S.C. § 506(b) are those necessary to the collection and protection of a creditor's claim. In re Kroh Bros. Dev. Co., 105 B.R. 515, 521 (Bankr.W.D.Mo.1989) (citing In re Reposa, 94 B.R. 257, 261 (Bankr.D.R.I.1988)). Under 11 U.S.C. § 506(b), fees are reasonable only if they are incurred in protecting a secured creditor's rights in its collateral or in an effort to collect the debt. In re Brunel, 54 B.R. at 464.
As previously stated, the burden of proof as to the reasonableness of the fees is upon the applicant. In addition to any objection voiced by a party in interest, the Court has an independent duty to investigate the reasonableness of compensation. In re Pettibone Corp., 74 B.R. 293, 299-300 (Bankr.N.D.Ill.1987) (citing In re NRG Resources, Inc., 64 B.R. 643, 650 (W.D.La.1986); In re Esar Ventures, 62 B.R. 204, 205 (Bankr.D.Ha.1986); In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 585 (Bankr.D.Utah 1985); In re Wilson Foods Corp., 36 B.R. 317, 320 (Bankr.W.D.Okla.1984)); In re Holthoff, 55 B.R. 36, 39 (Bankr.E.D.Ark.1985) (citing Fed. R. Bankr.P. 2016(a); In re Thomas, Inc., 43 B.R. 510 (Bankr.D.Mass.1984); In re Bolton, 43 B.R. 598 (Bankr.E.D.N.Y.1984)).
A fee application should be specific enough to identify the legal services rendered. In re Westside Creek Ltd. Partnership, 93 B.R. 177, 180 (Bankr.E.D.Ark.1988) (citing Fed. R. Bankr.P. 2016; In re Holthoff, 55 B.R. 36, 39 (Bankr.E.D.Ark.1985)). Counsel should not group all tasks performed in a single billing; otherwise, the Court is unable to determine whether the time spent on a specific task is reasonable. See In re Beverly Mfg. Corp., 841 F.2d at 370 (citing In re Art Shirt Ltd., 30 B.R. 318 (Bankr.E.D.Pa.1983); In re Doyle-Lunstra Sales Corp., 19 B.R. 1003 (D.S.D.1982); In re Hamilton Hardware, 11 B.R. 326 (Bankr.E.D.Mich.1981)).
The allowance of attorneys' fees is within the discretion of the trial judge because he "has a close and intimate knowledge of the efforts expended and the value of the services rendered by the attorneys in the particular proceeding." In re Cushard, 235 B.R. 902, 909 (Bankr.W.D.Mo.1999) (citing In re Harman Supermarket, Inc., 44 B.R. 918, 919 (Bankr.W.D.Va.1984) (citing Barber v. Kimbrell's, Inc., 577 F.2d 216, 226 (4th Cir.1978))).
The attorney fee statement at issue reflects that Ms. Sexton charged $150.00 per hour, which is a customary rate for attorneys who practice before the U.S. Bankruptcy Court in the State of Arkansas. However, the statement is flawed in so many aspects and the quality of legal services performed by Ms. Sexton is so far below the standard of competence expected of attorneys licensed to practice in the U.S. Bankruptcy Court that the rate of $150.00 per hour in this case by this attorney is excessive. Guided by the factors enunciated by the Eighth Circuit Court of *5 Appeals in Winter v. Cerro Gordo County Conservation Board, the Court reduces this rate to $90.00 per hour. See Winter v. Cerro Gordo County Conservation Bd., 925 F.2d 1069, 1074 n. 8 (8th Cir.1991). The following factors weigh in favor of reducing the hourly rate in this case: time and labor required; novelty and difficulty of the questions; skill requisite to perform the legal service properly; the amount involved and the results obtained; and the experience, reputation, and ability of the attorney.
Aside from the excessive hourly rate, the statement is flawed in other respects. Ms. Sexton has billed an unreasonable number of hours for simple or unnecessary tasks. Further, she has billed for services actually performed for a client other than Mrs. McGehee and for services for Mrs. McGehee that are unrelated to protecting her claim. The Court will disallow or reduce the following charges for the reasons set out below.
I.
CHARGES INCURRED PRIOR TO CREDITOR'S PURCHASE OF NOTE
The statement lists the following:
DATE SERVICE TIME CHARGE
12/30/03 [sic] Meeting with
Barbara Griffin
re: Purchase of
Lakehouse by
Mary McGehee 1.5 hours $225.00
1/06/03 Meeting with
Barbara Griffin
and Mary
McGehee re:
Purchase of
Lakehouse from
Bancorp 2.5 hours $375.00
1/08/03 Meeting with
Barbara Griffin
and Mary
McGehee re:
feasibility of selling
Wal-Mart
shares to finance
purchase of
Lakehouse from
Bancorp 2 hours $300.00
1/10/03 Meeting with
Barbara Griffin
and Mary
McGehee to
finalize terms
of proposed
purchase 2.5 hours $375.00
1/13/03 Meeting with
Barbara Griffin
and Mary
McGehee re:
purchase from
Bancorp 2.5 hours $375.00
The charges total 11 hours at $150.00 per hour for a total of $1,650.00 concerning services rendered before Mrs. McGehee purchased the note. These charges were not incurred in connection with protecting Mrs. McGehee's interest in the bankruptcy case, and these charges are not properly part of Mrs. McGehee's secured claim.
II.
CHARGES RELATED TO DUAL REPRESENTATION
DATE SERVICE TIME CHARGE
1/14/03 Meeting with
Barbara Griffin
and Mary
McGehee re:
representation of
Mary McGehee
in pending
litigation 3 hours $450.00
01/16/03 Review of Rules
of Professional
Conduct re:
representation
of Barbara and
Mary McGehee 2.5 hours $375.00
01/17/03 Meeting with
Barbara and
Mary McGehee
re: disclosure of
any possible
conflicts 2 hours $300.00
01/20/03 Meeting with
Barbara and
Mary McGehee
to discuss representation
of both 2 hours $300.00
These charges total 9.5 hours at $150.00 per hour totaling $1,425.00 concerning discussions with Mrs. McGehee and Barbara *6 Griffin on the issue of counsel's dual representation of both clients. First, the Court cannot conceive of any reason why the issue of Ms. Sexton's dual representation of Mrs. Griffin and her mother would require 9.5 hours of discussion with the two clients. Second, there is no reason why 9.5 hours of discussing representing two creditors in the same case should all be billed to Mrs. McGehee. Finally, these discussions have no bearing on the defense of Mrs. McGehee's deed of trust and are not allowable as part of her secured claim.
III.
EXCESSIVE OR VAGUE CHARGES
Numerous charges in the bill appear excessive for the services performed or are not specific enough to indicate what work was done. These include the following:
DATE SERVICE TIME CHARGE
01/21/03 Draft and File
Entry of Appearance
for Mary
McGhee in Montgomery
County 1.5 hours $225.00
An entry of appearance typically contains two one-sentence paragraphs, and it is inconceivable that it required 1.5 hours of professional attorney time to prepare.
DATE SERVICE TIME CHARGE
3/06/03 Draft Motion
to Abandon
Lakehouse 2 hours $300.00
3/07/03 Finalize Motion
to Abandon and
File Motion to
Abandon 2 hours $300.00
Ms. Sexton charged $600.00 for preparation of a motion to abandon. Filed March 11, 2003, the motion to abandon consists of a three-page routine document that should not require four hours to prepare.
DATE SERVICE TIME CHARGE
3/25/03 Motion for Continuance
of Hearing
Set for 3/27 1.5 hours $225.00
This motion for continuance consists of an introductory sentence, three one-sentence paragraphs, and a conclusion. It could not have required 1.5 hours of attorney time to prepare.
DATE SERVICE TIME CHARGE
2/10/03 Review of bankruptcy
file re:
Mary McGehee
and Lakehouse 3 hours $450.00
2/11/03 Review of motion
to vacate and
Abandon filed
9/27/02 by
Bancorp and
Review of Order
to Vacate and
Abandon filed
11/19/02 2.5 hours $375.00
These charges total 5.5 hours at $150.00 per hour totaling $825.00. The itemization does not adequately describe what services are being rendered. The only description given suggests that Ms. Sexton spent 5.5 hours pondering about the lake house and studying a motion filed September 27, 2002, and an "Order to Abandon" filed November 19, 2002.
IV.
CHARGES UNRELATED TO DEFENDING THE CLAIM
DATE SERVICE TIME CHARGE
01/24/03 Meeting with
Barbara Griffin
and Mary
McGehee to discuss
continuation
of per diem
interest rate 2 hours $300.00
Upon the Trustee's examination as to this item, Ms. Sexton explained the charge as follows:
Q. The next entry is January the 24th, 2003 meeting with Barbara and Mary McGehee to discuss continuation of per diem interest rate.
A. Yes.
Q. You spent two hours discussing the daily interest rate on the loan?
*7 A. Yes, and explaining how it applied and how it should be paid, you know, whether they wanted to continue that interest rate or whether it would be in the benefit of one of the parties to have a higher interest rate, whether they wanted to pay it on a quarterly basis. We had a number of schedules laid out.
Tr. at 26, 27.
This explanation is completely bogus. The interest rate on the note purchased by Mrs. McGehee is a fixed rate so legal services regarding the rate are not required. Ms. Sexton may be referring to a discussion of how often her client Barbara Griffin wanted to pay the accruing interest to her other client, Mrs. McGehee. Such discussions do not pertain to the defense of Mrs. McGehee's secured claim.
DATE SERVICE TIME CHARGE 3/03/03 341 Meeting 6 hours $900.00
Ms. Sexton purported to represent Barbara Griffin, Mrs. McGehee, and Highway 71 South Liquors, Inc. at the time of the first meeting. Thus, there is no reason that the entire first meeting should be charged to Mrs. McGehee. Therefore, the Court reduces the time at the first meeting charged to Mrs. McGehee to two hours.
V.
UNNECESSARY TRIPS TO LAKE OUACHITA
Counsel made three trips to view the property securing Mrs. McGehee's debt:
DATE SERVICE TIME CHARGE
2/19/03 Trip to view
Lakehouse 8 hours $1,200.00
4/30/03 Trip to view
Lakehouse 8 hours $1,200.00
5/27/03 Trip to Mt. Ida
re: Richard Cox
and appraisers 10 hours $1,500.00
_________ __________
26 hours $3,900.00
There is no discernable justification for counsel to spend 26 hours looking at the lake house. The value of the lake house is an issue in this case; therefore, viewing the property by counsel would be appropriate, but not for 26 hours billed at $150.00 an hour. Time spent viewing the lake house will be reduced to a total of eight hours.
VI.
CHARGES FOR SERVICES NOT PERFORMED FOR CREDITOR
DATE SERVICE TIME CHARGE
3/27/03 Hearing in Court 9 hours $1,350.00
5/16/03 Hearing in Little Rock 8 hours $1,200.00
________ __________
17 hours $2,550.00
These charges were not for services performed for Mrs. McGehee. The matter on March 27, 2003, concerning Mrs. McGehee was continued at Ms. Sexton's request. Mrs. McGehee's motion was the first matter called on the docket on that date, and the motion for continuance was immediately granted. Mrs. McGehee was not present in Court. The rest of the day was spent concerning the following matters in which Ms. Sexton participated:
1. Motion filed 2/18/03 by Barbara Griffin to set aside order of conversion;
2. Motion filed 3/21/03 to substitute filed by Diane Sexton
a. Objection filed 3/24/03 by Trustee
b. Objection filed 3/25/03 by Lance Beaty and others;
3. Trustee's motion to disqualify Diane Sexton as attorney for Highway 71 South Liquors, Inc. and for sanctions;
4. Motion filed 3/17/03 by Stephen Griffin to disqualify Isaac Scott as attorney for Lance Beaty and others;
5. Motion for relief from stay as to Trustee's seizure of non-estate property *8 filed 3/12/03 by Highway 71 South Liquors, Inc.
The hearing held in Little Rock on May 16, 2003, concerned Stephen Griffin's motion to reconvert the case to chapter 11. Ms. Sexton, who appeared with Barbara Griffin, announced that she would not participate in the hearing, and she did not. The hearing had nothing to do with Mrs. McGehee's claim pursuant to section 506(b).
CONCLUSION
What is apparent from Ms. Sexton's fee request is that she has billed Mrs. McGehee, the 82-year-old mother of Barbara Griffin, for many services unrelated to Mrs. McGehee's deed of trust, but instead concern issues in which Barbara Griffin and Ms. Sexton were otherwise involved.
Moreover, the fee request is replete with overstated and unjustifiable charges. As part of the secured claim, the Court will allow $3510.00 in legal fees, which represents 39 hours of work billed at the reduced rate of $90.00 per hour. Charges for the remaining 74 hours itemized on Ms. Sexton's statement will not be allowed.
Therefore, the Trustee's objection to Mrs. McGehee's claim of $371,446.79 is sustained. She is allowed a secured claim of $304,260.09 and $3510.00 in attorneys fees.
IT IS SO ORDERED.
APPENDIX
SEXTON LAW FIRM
Attorney at Law
3420 Duke Avenue
Fort Smith, AR 72908
Carole Diane Sexton Telephone XXX-XXX-XXXX
Attorney Facsimile XXX-XXX-XXXX
Barbara Griffin
Paralegal
Diane Sexton's HOURLY RATE: $150
(Rate per minute = $2.50)
DATE SERVICE TIME CHARGE
12/30/03 Meeting with Barbara
Griffin re: Purchase of
Lakehouse by Mary
McGehee 97 min 242.50
01/06/03 Meeting with Barbara
Griffin and Mary
McGehee re: Purchase
of Lakehouse from
Bancorp 154 min 385.00
01/08/03 Meeting with Barbara
Griffin and Mary
McGehee re: feasibility
of selling Wal-Mart
shares to finance purchase
of Lakehouse
from Bancorp 126 min 315.00
01/10/03 Meeting with Barbara
Griffin and Mary
McGehee to finalize
terms of proposed
purchase 161 min 402.50
01/13/03 Meeting with Barbara
Griffin and Mary
McGehee re: purchase
from Bancorp 154 min 385.00
01/14/03 Meeting with Barbara
Griffin and Mary
McGehee re: representation
of Mary
McGehee in pending
litigation 187 min 467.50
01/15/03 Review of file of pending
litigation in
Montgomery Co. 94 min 235.00
01/16/03 Review of Rules of
Professional Conduct
re: representation of
Barbara and Mary
McGehee 152 min 380.00
01/17/03 Meeting with Barbara
and Mary McGehee re:
disclosure of any possible
conflicts 124 min 310.00
01/20/03 Meeting with Barbara
and Mary McGehee to
discuss representation
of both 121 min 302.50
01/21/03 Draft and file Entry of
Appearance for Mary
McGehee in Montgomery
County 91 min 227.50
*9
01/24/03 Meeting with Barbara
and Mary McGehee to
discuss continuation of
per diem interest
rate 123 min 307.50
02/10/03 Review of bankruptcy
file re: Mary McGehee
and Lakehouse 184 min 460.00
02/11/03 Review of Motion to
Vacate and Abandon
filed 09/27/02 by
Bancorp and Review of
Order to Vacate and
Abandon filed 11/19/02 156 min 390.00
02/12/03 Phone conference with
Dane Clay re: abandonment
of Lakehouse 30 min 75.00
02/13/03 Trip to Fayetteville to
review Court's docket 243 min 607.50
02/19/03 Trip to view
Lakehouse 487 min 1,217.50
02/21/03 Trip to Ozark to meet
With Client 249 min 622.50
03/03/03 341 Meeting 368 min 920.00
03/06/03 Draft Motion to Abandon
Lakehouse 122 hours 305.00
03/07/03 Finalize Motion to
Abandon and file
Motion to Abandon 127 min 317.50
03/25/03 Motion for Continuance
of Hearing set for 03/27 92 min 230.00
03/25/03 Motion to Clarify previous
Order of Court 96 min 240.00
03/27/03 Hearing in Court 561 min 1,402.50
04/30/03 Trip to view Lakehouse 492 min 1,230.00
05/02/03 Trip to Ozark to Meet
with Client 249 min 622.50
05/05/03 Motion to Re-Schedule
Hearing set for 6/23 67 min 167.50
05/16/03 Hearing in Little Rock 491 min 1,227.50
05/19/03 Trip to Ozark to Meet
with Client 252 min 630.00
05/19/03 Search for appraiser
located in Montgomery
Co. 129 min 322.50
05/21/03 Search docket for all
Bancorp orders 128 min 320.00
05/21/03 Meeting with Barbara
and Mary McGehee re:
2004 set by Trustee 153 min 382.50
05/27/03 Trip to Mt. Ida re:
Richard Cox and
appraisers 611 min 1,527.50
06/02/03 Pre-trial preparation 127 min 317.50
06/03/03 Hearing in Fayetteville 490 min 1,225.00
06/06/03 Trip to Lakehouse to
make sure of defects
which auctioneer said
he did not notice 493 min 1,232.50
06/09/03 Draft objection to motion
to quash subpoena
for lakehouse appraisal 66 min 165.00
06/09/03 Subpoena to H. Rice
Brewer for appraisal
on lakehouse 30 min 75.00
06/09/03 Telephone conference
w/BancorpSouth re:
alleged $450,000
appraisal; discovered
the appraisal included
3 propertieslakehouse
plus 2 others 131 min 327.50
TOTAL TIME TO
DATE $20,519.50
PLUS: Filing fee for Motion to
Abandon (03/10/03) 75.00
Copies 1,135 @ $.10 113.50
Facsimile charges 103.00
Postage 7.20
TOTAL BILL TO DATE
06/09/03 $20,818.20
===========
NOTES
[1] The Debtor's schedules indicate that he resides in Ft. Smith, Arkansas, in Sebastian County.
[2] The date obviously contains a scrivener's error and should read "12/30/02".