Halloum v. McCormick, Barstow, Sheppard, Wayte & Carruth (In re Halloum)

BAP No. EC-15-1291-DTaJu (BAP 9th Cir. Jun. 28, 2016) (unpublished)
The BAP for the 9th Circuit affirmed the ruling of the bankruptcy court (E.D. Ca.) finding no abuse of discretion in approving a final fee application for debtor's former counsel through a "lodestar" analysis under section 330. BAP found no error in rejecting debtor's arguments that fee agreement for was a flat fee capped in the amount of the initial retainer, or in conclusion that debtor did sign fee agreement providing for hourly fees. BAP found that bankruptcy court did not abuse discretion in approving fees sought and conclusions were plausible under the evidence in the record in applying lodestar analysis. Debtor failed to present adequate evidence in opposition, and testimony on factual issues was not credible.
Procedural context:
Chapter 7 debtor appealed fee order awarding chapter 11 administrative expenses to his former attorney. BAP vacated and remanded to the bankruptcy court for additional factual findings. On remand, the bankruptcy court made detailed findings and reinstated the Fee Order (“Reinstated Order”). The debtor appealed the Reinstated Order to the BAP.
Halloum filed chapter 11 petition on January 26, 2012. Law Firm was employed as chapter debtor's counsel. Employment Order authorizing the Law Firm’s employment stated compensation would be at the ‘lodestar rate’ at the time that services are rendered in accordance with the Ninth Circuit decision in In re Manoa Fin. Co., 853 F.2d 687 (9th Cir. 1988). During the pendency of the chapter 11 case, the Law Firm submitted five Interim Fee Applications for payment of interim fees and expenses, each supported by a declaration signed by Mr. Halloum, which stated that he had reviewed the Interim Fee Applications and approved the fees and expenses as requested. The fees approved by Mr. Halloum in this process totaled $116,067. The Law Firm also filed an interim fee application on October 8, 2013, but withdrew it after Mr. Halloum refused to provide a declaration approving the fees. Debtor asserted that one of the partners of the Law Firm had agreed that the Law Firm would represent Mr. Halloum in the chapter 11 case for a fixed fee of $40,000. Mr. Halloum was unsuccessful in negotiating a consensual plan with Midwest Bank, N.A. (“Bank”), the secured creditor with liens on the real and personal property with which Mr. Halloum operated an ARCO gas station and convenience store. After Mr. Halloum used the Bank’s cash collateral without making the adequate protection payments upon which such use was conditioned, the bankruptcy court, on November 22, 2013, appointed a chapter 11 trustee (“Trustee”). Mr. Halloum’s case ultimately was converted to chapter 7 on February 12, 2014. On March 4, 2014, the Law Firm filed a Final Fee Application seeking additional compensation for its work as counsel for Mr. Halloum in the chapter 11 case in the amount of $114,004.50 and expenses of $2,892.56 and authorization to pay all unpaid fees for prior award periods. Mr. Halloum opposed the Final Fee Application, again asserting that partner of Law Firm had agreed that the Law Firm would represent Mr. Halloum for a fixed fee of $40,000. Mr. Halloum also asserted that the Law Firm did not adequately represent his interest in negotiating approval of a chapter 11 plan and attributed the conversion of the bankruptcy case to chapter 7 and the loss of his business to partner's actions or inactions. Mr. Halloum also sought recoupment from the Law Firm of fees previously approved and paid on an interim basis. After hearing, the bankruptcy court entered the Fee Order approving the Final Fee Application. Debtor appealed to BAP, and panel vacated the Fee Order, remanding to the bankruptcy court to make findings to support the Fee Order. If approved, the Law Firm’s total compensation, fees and expenses, for chapter 11 services provided to Mr. Halloum would be $232,974.06. On remand, the bankruptcy court held an evidentiary hearing August 12-13, 2015, at which the Law Firm's partner testified as to the nature of his contractual relationship with Mr. Halloum, and his historic fee practices representing debtors in bankruptcy, including never having represented a chapter 11 debtor in possession on a fixed fee basis during a 40 year career. The bankruptcy court also found that debtor executed fee agreement, which debtor disputed. The bankruptcy court found that without the signed Retainer Agreement and the $40,000 retainer, the Law Firm would not have filed the chapter 11. Attached to the chapter 11 petition filed on January 26, 2012, was the Disclosure of Compensation of Attorney for Debtor form (“Fee Disclosure”), signed by the partner on behalf of the Law Firm, which stated in relevant part: "For legal services, I have agreed to accept $38,954.00. Prior to the filing of this statement I have received $38,954.00." The Fee Disclosure further stated that in return for the above disclosed fee, “I have agreed to render legal service for all aspects of the bankruptcy case, including: representation of the debtor in adversary proceedings and other contested bankruptcy matters.” On February 10, 2012, Mr. Halloum filed with the bankruptcy court his application to employ the Law Firm (“Employment Application”). The Employment Application did not mention a fixed fee compensation arrangement. Instead, the Employment Application provided that the Law Firm was to be employed “under a general retainer” and disclosed that the Law Firm held $38,954 on account for attorneys’ fees and $1,046 on account for filing fees. The bankruptcy court understood that, as requested, the Law Firm’s employment was to be on an hourly basis and approved the Employment Application. The Employment Order specified that compensation would be on a “lodestar” basis, i.e., by multiplying the prevailing hourly rate by the number of hours reasonably and necessarily expended in the representation. The bankruptcy court found that “Mr. Halloum, late in the case, seized upon the [Free [Disclosure . . . as connoting a fixed fee and invalidating the [Retailer [Agreement.” The bankruptcy court concluded that the Fee Disclosure, made in compliance with Rule 2016(b), did not supplant or supersede the Retainer Agreement. The bankruptcy court further found that Mr. Halloum (1) had approved and signed each of the five Interim Applications filed by the Law Firm during the course of the chapter 11 case, (2) did not assert in any of the Interim Applications that they were unwarranted because the Law Firm had agreed to a $38,954 fixed fee, and (3) paid the Law Firm the amounts the bankruptcy court had allowed based on the Interim Applications. After the chapter 11 case had been pending for twenty months, Mr. Halloum sent the Law Firm partner an email regarding the next proposed interim fee application (“Proposed Application”). In that email, Mr. Halloum stated that he recognized that the chapter 11 case required more work than had been anticipated, but that he would not approve the fees that were being requested at that time. Two days later Mr. Halloum sent another email to the partner regarding the Proposed Application. In neither of these emails did Mr. Halloum assert that the partner had agreed to a fixed fee. The bankruptcy court found that the partner had worked diligently throughout the chapter 11 case to fashion a plan that was both feasible and confirmable. That work was not successful because (1) the Bank had come to mistrust Mr. Halloum (as evidenced by the adversary proceeding the Bank filed against Mr. Halloum seeking to except its debt from discharge on the theory that it would not have extended credit to Mr. Halloum had he disclosed his loss of $500,000 in stock market speculation), and (2) Mr. Halloum had been “intransigent” regarding a number of points about which he would neither compromise nor accept advice of counsel. The bankruptcy court concluded that the time spent on services was appropriate to the tasks involved, that the rates charged were appropriate, that the services performed were necessary to the administration of the case, that the time billed for the services performed was reasonable and commensurate with the “complexity, importance, and nature of the problem, issue, or task addressed,” that the Law Firm's partner "is one of the most skilled and experienced counsel practicing in this district in the bankruptcy field and specializing in chapter 11 reorganizations,” and that the compensation was reasonable based on customary compensation by comparable skilled practitioners in cases other than title 11 cases.
Dunn, Taylor, Jury

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