IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 99-60833
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In The Matter Of: REBECCA MITCHELL BARRON
Debtor
-------------------------
CYNTHIA DANIELS
Appellant
v.
REBECCA MITCHELL BARRON; JOHN A BARRON; CHARLES EASLEY
Appellees
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Appeal from the United States District Court
for the Northern District of Mississippi
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August 28, 2000
Before KING, Chief Judge, and PARKER, Circuit Judge, and
FURGESON*, District Judge.
KING, Chief Judge:
Attorney Cynthia Daniels seeks review of a district court
order affirming a bankruptcy court order approving her
compensation in an amount less than that prayed for in her
*
District Judge of the Western District of Texas, sitting
by designation.
application for compensation. For the reasons that follow, we
reverse and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND
Rebecca Mitchell Barron and John Barron were divorced in
1994. Under the terms of their separation agreement, Mrs. Barron
conveyed her interest in five tracts of real property to Mr.
Barron. As part of the same agreement, Mr. Barron was to make
four installment payments to Mrs. Barron totaling $210,000. Mr.
Barron paid the first installment of $50,000, but failed to make
any subsequent payments.
In February 1995, the Barrons remarried. Mr. Barron did not
re-deed any interest in the five properties to Mrs. Barron. Mrs.
Barron, however, forgave the balance of the $210,000 owed her
under the separation agreement. Shortly thereafter, she filed a
voluntary Chapter 7 bankruptcy case.
In September 1995, the Chapter 7 trustee (the “Trustee”)
filed an application seeking the appointment of Daniels as
Attorney for the Trustee. The application stated that Daniels
was “willing to work on a one-third (1/3) contingency basis of
the amount recovered in the filing of any preferential and/or
fraudulent complaints, if warranted.” Application For Employment
of Attorney Specially, filed Sept. 28, 1995, at 1, In re Barron,
No. 95-10538 (Bankr. N.D. Miss.). Both Randolph Lipscomb, Mrs.
2
Barron’s divorce attorney and a creditor of the Chapter 7 estate,
and Mrs. Barron filed objections to the application. At a
hearing on the Trustee’s application to employ Daniels,1
Lipscomb’s attorney argued that appointment was premature because
this was likely an easy case that would simply require Daniels to
make a demand for the sums due under the settlement agreement.
Also, the attorney drew to the court’s attention the extent of
the debt owed to Mrs. Barron under the settlement agreement. See
Transcript of Hearing, Nov. 17, 1995, at 5, In re Barron, No. 95-
10538 (Bankr. N.D. Miss.) (“[I]f the court will look to page four
which is paragraph 8A in the separation agreement, part of a
court order approving divorce, and it provides for two hundred 10
thousand [sic] dollars in lump sum alimony, the money in four
scheduled payments, the first of which was [due on] June 22,
1994, the second June 22, 95, [sic] the third installment in 1996
and the 4th in 97 [sic].”). In November 1995, the bankruptcy
court approved the Trustee’s application, conditioning approval
of Daniel’s contingency fee upon an actual suit being filed
against Mr. Barron following filing of a demand letter.2
1
Mrs. Barron withdrew her objection prior to the hearing.
2
The bankruptcy court found that there was an “extreme
likelihood of litigation in this matter at some point in time,”
but expressed no view on the expected length or difficulty of any
such litigation. In re Barron, No. 95-10538 (Bankr. N.D. Miss.
Nov. 30, 1995) (Order Approving Employment of Attorney
Specially).
3
In March 1996, Daniels, acting on behalf of the Trustee,
filed a complaint against Mr. Barron. In April 1997, she moved
for summary judgment. After Mr. Barron filed a responsive
pleading, the bankruptcy court held a telephonic hearing, during
which it informed the parties that the terms of the separation
agreement remained in effect even after the Barrons’ remarriage.
Accordingly, in August 1997, the court granted judgment against
Mr. Barron in the amount of $160,000, the amount owed Mrs. Barron
under the separation agreement.
Daniels then filed an application for compensation seeking
$53,333.33, one-third of the recovery. Objections were filed by
the Barrons and a creditor who objected to payment of Daniels’s
fee in priority to his claim. The bankruptcy court held a
hearing, at the conclusion of which Daniels was asked to prepare
an itemization of her charges. In November 1997, the bankruptcy
court entered an order approving compensation for Daniels in the
amount of $24,431.25 with an additional expense allowance of
$2,500.00. In an accompanying opinion, the bankruptcy court
concluded that its approval of the contingency fee had been
improvident. Daniels appealed from this order to the district
court. The district court affirmed, and Daniels filed this
timely appeal.
II. DISCUSSION
4
A bankruptcy court’s determination of attorney’s fees is
reviewed for abuse of discretion. See In re Fender, 12 F.3d 480,
487 (5th Cir. 1994). “‘The abuse of discretion standard includes
review to determine that the discretion was not guided by
erroneous legal conclusions.’” In re Coastal Plains, Inc., 179
F.3d 197, 205 (5th Cir. 1999) (quoting Koon v. United States, 518
U.S. 81, 100 (1996)) (alteration in original). “The bankruptcy
court’s conclusions of law are reviewed de novo.” In re Texas
Securities, Inc., No. 99-11012, 2000 WL 955621, at *2 (5th Cir.
Jul. 7, 2000).
Section 328 of the Bankruptcy Code allows an attorney
seeking to represent a bankruptcy estate to obtain prior court
approval of her compensation plan. See 11 U.S.C. § 328(a) (“The
trustee . . . may employ or authorize the employment of a
professional person under section 327 or 1103 of this title . . .
on any reasonable terms and conditions of employment, including
on a retainer, on an hourly basis, or on a contingent fee
basis.”); In re National Gypsum Co., 123 F.3d 861, 862 (5th Cir.
1997) (“Under present § 328 the professional may avoid . . .
uncertainty by obtaining court approval of compensation agreed to
with the trustee (or debtor or committee).”). Under § 328, once
a compensation plan has received bankruptcy court approval, “the
court may allow compensation different from the compensation
provided under such terms and conditions after the conclusion of
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such employment, if such terms and conditions prove to have been
improvident in light of developments not capable of being
anticipated at the time of the fixing of such terms and
conditions.” 11 U.S.C. § 328(a) (emphasis added).
On appeal, Daniels argues that the bankruptcy court erred in
modifying her pre-approved compensation plan absent a proper
finding to support a conclusion that the contingency fee was
“improvident in light of developments not capable of being
anticipated at the time of the fixing of such terms and
conditions.” Id. In its opinion on the matter, the bankruptcy
court stated its understanding of the applicable law as follows:
The law, applicable to the issue now before this court,
has been clearly delineated by the Fifth Circuit Court of
Appeals in Matter of Nat. Gypsum Co., 123 F.2d 861 (5th Cir.
1997) decided October 8, 1997. Judge Reavley, writing for
the court, stated the following:
Prior to 1978 the most able professionals were
often unwilling to work for bankruptcy estates where
their compensation would be subject to the
uncertainties of what a judge thought the work was
worth after it had been done. [Footnote omitted] That
uncertainty continues under the present § 330 of the
Bankruptcy Code, which provides that the court award to
professional consultants "reasonable compensation"
based on relevant factors of time and comparable costs,
etc. Under present § 328 the professional may avoid
that uncertainty by obtaining court approval of
compensation agreed to with the trustee (or debtor or
committee). Thereafter, that approved compensation
may be changed only for the following reason:
"Notwithstanding such terms and conditions, the court
may allow compensation different from the compensation
provided under such terms and conditions after the
conclusion of such employment, if such terms and
conditions prove to have been improvident in light of
developments not capable of being anticipated at the
time of the fixing of such terms and conditions."
6
The court must therefore set the compensation
award either according to § 328 or § 330. If prior
approval is given to a certain compensation, § 328
controls and the court starts with that approved
compensation, modifying it only for developments
unforeseen when originally approved. If the most
competent professionals are to be available for
complicated capital restructuring and the development
of successful corporate reorganization, they must know
what they will receive for their expertise and
commitment. Courts must protect those agreements and
expectations, once found to be acceptable.
In re Barron, No. 95-10538, at 6 (Bankr. N.D. Miss. Nov. 4, 1997)
(quoting National Gypsum, 123 F.3d at 862-63) (emphasis added).
It is obvious from the bankruptcy court’s discussion in its
opinion that it relied on our statement in National Gypsum that
approved compensation could be modified for “developments
unforeseen when originally approved.” The bankruptcy court
stated:
At the time of the approval of the contingency fee
arrangement, the court did not anticipate the substantial
amount of the subsequent recovery resulting from the
fraudulent conveyance cause of action against Mr.
Barron. . . .
The fraudulent conveyance suit never went to trial.
Once the court reviewed the motion for summary judgment
filed on behalf of the trustee, the outcome was easily
determined . . . .
. . . .
Speaking in sports parlance, this adversary proceeding
became a “slam dunk.” It was not perceived as such when the
contingency fee application was approved.
Id. at 7-8. In doing so, the bankruptcy court applied the
incorrect legal standard.
7
Although both National Gypsum and Texas Securities, which
cites National Gypsum, involved a challenge to the bankruptcy
court’s determination of the appropriate amount of compensation
to award an attorney, each of those cases turned on the question
of whether the bankruptcy court had erred by applying § 330
rather than § 328. In neither case were we required to construe
§ 328 or determine whether developments relied upon by the
bankruptcy court were of the type contemplated by the provision.
Our mention in both cases of “developments unforeseen” was simply
a shorthand reference to the appropriate standard set forth in
the statute: a bankruptcy court may only depart from a
compensation scheme approved under § 328(a) “if such terms and
conditions prove to have been improvident in light of
developments not capable of being anticipated at the time of the
fixing of such terms and conditions. 11 U.S.C. § 328(a)
(emphasis added); see also In re Reimers, 972 F.2d 1127, 1128
(9th Cir. 1992). The bankruptcy court here should have relied
upon the plain language of the statute rather than our shorthand
reference to it. It is not enough that the developments were
simply unforeseen. We leave to the bankruptcy court the task of
applying the correct legal standard in the first instance.
III. CONCLUSION
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For the foregoing reasons, we REVERSE the district court’s
affirmance of the bankruptcy court’s order and REMAND for further
proceedings consistent with this opinion.
9