Recent Brooklyn Bankruptcy Court Decision Reviews Legal Fee Factors
What is a reasonable legal fee for a typical Chapter 13 bankruptcy case? That issue was addressed in a decision just released by Judge Jerome Feller, a bankruptcy judge in the Eastern District of New York, sitting in the Brooklyn Bankruptcy Court.
In that case, Chapter 13 trustee Marianne DeRosa objected to a $7,500 flat legal fee that the debtor’s attorney had charged. She insisted that the debtor’s attorney, Paul Hollender, of New York City, bring a formal fee application to approve his fee. She then filed opposition to his fee, arguing that it was in excess of the fees customarily charged for routine cases in this district.
Judge Feller issued a twelve-page decision on October 11, 2012 in which he concluded that reasonable compensation for a routine Chapter 13 filing in this jurisdiction is $5,000. In re: Nicholas Moukazis, (01-12-42200-jf, Bankr. E.D.N.Y.). (In her motion papers, Trustee Marianne DeRosa pointed out that the customary Chapter 13 legal fees in this jurisdiction are between $3,500 and $5,000.)
This is important news as Long Island bankruptcy attorneys have at times been at odds with the two Chapter 13 trustees in this district over what a reasonable fee is.
For a period of time, the other Chapter 13 trustee in our district, Michael J. Macco, insisted that every bankruptcy practitioner charging over $4,000 had to bring a fee application to seek approval of the fee. Now we have a current judicial determination indicating what is reasonable for routine Chapter 13 cases.
For those who are not familiar with Chapter 13 practice, these bankruptcy proceedings, which involve a payment plan, usually require several court appearances, and often involve at least twice as much work as a typical Chapter 7 case.
Factors In Determining What a Reasonable Bankruptcy Attorney Fee Is In a Consumer Case
Judge Feller began the legal analysis in his decision by reviewing the elementary bankruptcy law concept that the Bankruptcy Court not only has the authority, but the duty, to determine the reasonableness of compensation paid or agreed to be paid for representing a debtor in a bankruptcy case regardless of whether a party in interest objects to it.
The Judge then determined that the following factors were necessary to assess the reasonableness of the legal fee: the necessity of the services rendered, the benefit to the debtor, the time expended, the customary fees and reasonable hourly rates for the services performed, and public policy concerns.
Judge Feller observed that the Moukazis case was unexceptional and uncomplicated. The debtors’ income was about $150,000 per year. They owed about $92,000 in unsecured debt. Their mortgage was current. The plan proposed a distribution of about 44% to unsecured creditors.
The debtors retained their attorney about seven weeks before the petition was filed. There was only one meeting of creditors. The Court confirmed the Chapter 13 plan less than six weeks after that. The attorney performed the legal work well.
The retainer agreement the attorney used provided for the $7,500 flat legal fee, and also indicated that this was for the bare minimum of possible legal services in a Chapter 13 case.
The attorney also indicated that he reserved the right to charge additional fees for services such as amendments, attendance at additional meetings of creditors or hearings, and routine motion practice.
Of the $7,500 fee, the debtors paid $2,000 prior to filing. In his fee application, the debtor’s attorney claimed he spent 12 hours devoted to the case, and that his paralegals expended a total of 23 hours.
The debtors were actually able to afford the higher fee; however, that did not sway the judge. He observed that they were paying a portion of the fee through the Chapter 13 plan, and that unless there is a 100% plan, unsecured creditors will effectively pay the fee while receiving a lower pro rata distribution.
Public Policy Considerations Come In To Play In Determining Reasonableness of Bankruptcy Legal Fee
The Judge also commented on the public policy considerations for ensuring that Chapter 13 legal fees are reasonable.
Empirical evidence shows that Chapter 13 cases are much more likely to succeed when debtors are represented by counsel. Accordingly, in order to ensure that debtors have access to counsel, they should not be overcharged.
Thus, a reasonable fee must be one which protects the debtor, while being generous enough to encourage lawyers to render the necessary and exacting services that bankruptcy cases often require.
Some districts in other parts of the country have “fee caps” in consumer cases which essentially permit bankruptcy counsel to charge any fee up to the cap without having to obtain court approval. Our district is not one of them.
Judge Feller, in the decision, expressly stated that “this Court is not hereby endorsing fee limits in Chapter 13 cases” and “does not intend to establish a fee cap in Chapter 13 cases.”
Looking back to other decisions which addressed Chapter 13 legal fees in this district, in 2010, Judge Robert E. Grossman, sitting in the Central Islip Bankruptcy Court, addressed the propriety of a $15,000 fee charged by an attorney who apparently was less than competent in representing the debtor.
In that case, Chapter 13 trustee Michael J. Macco objected to the fee and the Judge reduced it to $4,000 stating that “the bankruptcy proceeding was not complicated” and the attorney “performed at an incompetent level.”
In his decision (which is now several years old), Judge Grossman pointed out that experienced counsel charged between $4,000 and $4,500 for cases in the district. He therefore reduced the fee to $4,000 for this attorney and ordered him to disgorge the rest. The attorney appealed to the District Court, which affirmed. In re Arebelo, 2011 U.S. Dist. LEXIS 37449, 2011 WL 1336676.
The takeaway here is that an experienced Chapter 13 bankruptcy attorney, who does a proper and professional job, can charge as much as $5,000 for a typical Chapter 13 case, and more if unusual or additional legal work is necessary.
In addition, if the trustee or court challenges the legal fee, the bankruptcy attorney bears the burden of demonstrating the reasonableness of the fee.
Written by Craig D. Robins, sale Esq.
Flouting E.C.F. Filing Rules Has Grave Consequences
“The following is a cautionary tale of what occurs when the uninitiated attempt to practice before the bankruptcy court without a firm grasp of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.”
“Even the most well intentioned practitioners can inadvertently wreak havoc on unsuspecting clients by failing to appreciate the complexity of the bankruptcy process. It is also a prime example of how things can escalate when an attorney is less than candid with the Court about his or her mistakes.”
The preceding words were taken verbatim from a recent Massachusetts decision that severely castigated an attorney for messing up a consumer debtor’s bankruptcy filing and then lying about it to the court. This month I will discuss that case, and another from one of our own courts here in the Eastern District of New York, both of which lambasted attorneys who utterly failed to abide by the rules.
Inexperienced Attorney Makes Mess of Bankruptcy Filing
In the Massachusetts case, Bankruptcy attorney Georgia S. Curtis was authorized to use E.C.F., but was grossly unfamiliar with how to do so. “E.C.F.,” which stands for Electronic Case Filing System, is the computerized court website system through which attorneys file court documents such as bankruptcy petitions In Re: Jackquelyn D. Stallworth, 2012 Bankr. LEXIS 740 (Bankr. D. Mass 2/8/12).
Since 2003, every petition and other court document that I’ve filed with the court has been done through my office computer, while logged into the court’s E.C.F. website. For almost a decade, all bankruptcy attorneys are required to file their bankruptcy petitions, motion papers and other documents by E.C.F.
When Curtis filed her client’s petition, which was only the second petition that the attorney had ever filed, her inexperience got the best of her as she neglected to file the Creditor Matrix or the Statement of Social Security Number. These are mandatory requirements, and failure to abide by them, as Curtis soon learned, is fatal.
Nine days later the court dismissed the petition. Curtis also failed to file the Credit Counseling Certificate and page 3 of the petition, which is one of the petition pages that contains the attorney’s signature.
Curtis then thought she could file a motion to vacate the dismissal by e-mail (which is not the appropriate procedure for filing a motion). However, she messed this up as well, by attaching the wrong PDF document. The court ordered her to correct this mistake within two days.
Did Curtis do that? No. Instead of correcting the deficient filing, two weeks later she filed a second Chapter 7 case without her client’s knowledge.
The petition in the second case contained only the debtor’s name, which was spelled incorrectly, the last four digits of her Social Security number, and the county of her residence, omitting her street and mailing addresses, as well as reference to her prior filings.
Additionally, the schedules accompanying the Debtor’s petition were blank or were otherwise incomplete, which, if taken literally as pointed out by the judge, reflected that she had neither assets nor any creditors.
The judge then issued a sua sponte order to show cause directing Curtis to show cause why the court should not sanction her and suspend her E.C.F. filing privileges. Because this petition was basically a blank, it also caught the attention of the United States Trustee who brought a motion against Curtis seeking to have her disgorge the legal fee.
Over several order to show cause hearings, Curtis testified that she did indeed file all necessary documents when that was not true. She also offered conflicting and contradictory explanations of what had happened.
The judge wasn’t happy. He suspended Curtis’s E.C.F. privileges, but indicated that Curtis could purge her “civil contempt” by becoming re-certified with E.C.F. (All attorneys are required to participate in an E.C.F. training course as a prerequisite to obtaining authority to file by E.C.F.).
In addition, the judge stated that he had reasonable cause to believe that Curtis violated the Rules of Professional Conduct and referred the matter to the District Court for further disciplinary proceedings.
Curtis had a problem adhering to the court’s E.C.F. rules: she violated them. That led to a suspension of her E.C.F. privileges. But her problems increased exponentially when she lied to the court. That led to a most serious referral that might result in her losing her license to practice. For a legal practitioner, not knowing what you’re doing is bad enough; perjuring yourself in court: indefensible.
Suspended Attorney Files Petitions in Other Attorney’s Name
On March 22, 2012, Judge Carla E. Craig, sitting in the Brooklyn Bankruptcy Court, issued another interesting decision involving attorney ineptitude and impropriety with the E.C.F. system. In re: Clyde Flowers, (01-12-40298-cec, Bankr. E.D.N.Y.)
Peter J. Mollo was a Brooklyn bankruptcy attorney who had just been suspended from practicing law in this state in January 2012 by the Appellate Division for several reasons such as endorsing a check without permission.
That left him with a bunch of bankruptcy clients whose petitions he had not filed. What he should have done was transferred the files to another attorney after first consulting with his clients. Instead, he called another local attorney, Brian K. Payne, and asked him if he would take over representation. However, no final agreement was reached.
Mollo, nevertheless quite eager to get these four cases filed, revised the petitions to indicate that the debtors’ attorney was now Payne — even though Payne never agreed. Mollow then filed these four petitions under his own E.C.F. account and forged the electronic signature of Payne on each petition.
When the U.S. Trustee got wind of this after Payne sent a letter to the Chief Judge and others indicating that Mollo had filed petitions without his knowledge, consent, authority or signature, the UST immediately brought a motion to sanction Mollo, revoke his authorization to use the E.C.F. system, disgorge his fees, and compensate replacement counsel.
At the hearing, Mollo admitted that he “made terrible egregious, unbelievable errors.” The judge determined that Mollo violated Bankruptcy Rule 9011 by filing a forged document, an act that warranted sanctions.
Mollo agreed to disgorge all legal fees received, which was complicated by the fact that he kept such poor records that he was not sure how much he actually did receive. He also agreed to compensate each debtor’s replacement counsel. He lost his E.C.F. privileges, not that he would have been legally able to use them in light of his suspension.
Finally, the judge thought additional sanctions were warranted given the egregious nature of Mollo’s violations and their similarity to the conduct that got him suspended in the first place (forging signatures). Judge Craig sanctioned Mollo an additional $3,000, stating that Mollo’s conduct compromised the integrity of the court system and the electronic filing process.