Opinion
No. 13-04-10155-SF.
August 23, 2005
ORDER ON FEE APPLICATION FILED BY DEBTOR'S COUNSEL
On July 28, 2005, the Court conducted an evidentiary hearing on the Application for Allowance and Payment of Compensation and Reimbursement of Expenses and Costs and for Shortened Objection Deadline ("Application") (doc 57) filed by Debtors' counsel ("Counsel") and the objections thereto filed by the Chapter 13 Trustee (docs 62 and 69). On August 9, 2005, the Court entered an interim stipulated order granting in part the Application and permitting Counsel to begin receiving payments (doc 73).
The issue at the evidentiary hearing, which was not resolved by the interim stipulated order, was what portions of the prepetition services rendered to the Debtors were "for representing the interests of the debtor in connection with the bankruptcy case". See 11 U.S.C. § 330(a)(4)(B), incorporated into 11 U.S.C. § 503(b)(2). (The parties stipulated that all the post petition services were compensable.) Such prepetition services are to be treated as administrative claims of the estate. In re Busetta-Silvia, 314 B.R. 218 (10th Cir. B.A.P. 2004). Counsel's time sheets, attached to the Application and admitted into evidence as Exhibit 1, together with the testimony of Counsel, constituted the evidence.
Having reviewed the evidence and arguments of counsel, the Court finds that a substantial portion of the prepetition fees were incurred for work that was undoubtedly helpful to the Debtors and, to put it mildly, very well done, but nevertheless not done "in connection with the bankruptcy case" as such. Those portions of the prepetition fees are therefore not allowable as administrative claims against the estate.
There is no bright line between "in connection with" the bankruptcy case and not in connection with the case.Busetta-Silvia cites the standard used in an unpublished case,In re Scribner, No. 401-44799 (Bankr.N.D.Tex. Aug. 7, 2002).In re Busetta-Silvia, 314 B.R. at 265: "[T]he [Scribner] Court concludes that fees are incurred `in connection with' a bankruptcy case when the client has chosen bankruptcy as the means through which to resolve his financial difficulties and counsel thus begins to prepare for an actual filing under Chapter 13." (Internal quotation marks and citations omitted.) Using this standard is only partially helpful in this case, because the Debtors and Counsel clearly anticipated the filing of a bankruptcy petition from the outset of the representation yet much of the work was much more directly related to resolving the problems in a state-court context;e.g., filing answers and appearing in the state court actions. The work in Scribner was pretty much "before and after"; there was a pretty clear dividing line in that case between when the debtor was seeking other ways to solve the problem and when the debtor turned to bankruptcy as the solution. In this case, the Henleys and Counsel from the outset determined that bankruptcy was at least a solution, if not the solution, and therefore entries for work in other courts is intermingled with entries for clearly bankruptcy related work. The mere fact that the beginning of the time entries start with a bankruptcy related entry cannot serve to make all subsequent entries related enough to the bankruptcy case to qualify fora administrative payment. Undoubtedly these other actions can be construed to have been in some vague way done "in connection with" the bankruptcy case, but the connection is too tenuous to justify treatment of the fees as administrative claims against the estate.
Which portions are allowable and which not are set out on the attached four pages from the Application, covering the period from August 2, 2002, through January 9, 2004. The entries starting on page 5 of the Application, including the first entry for January 12, 2004 (the petition date), through to the end, are allowed in their entirety. The Court makes no ruling on the issue of how the disallowed portion of the fees are to be treated.See In re Busetta-Silvia, 314 B.R. at 227, n. 44 ("If the attorney for the debtor is required to delegate some of his or her fee to the status of an unsecured creditor, he or she has a vested interest in seeing the debtor pay as high a percentage of the unsecured debt as possible. The debtor, on the other hand, is best served by proposing a plan that calls for the minimum amount necessary to meet confirmation standards. These two interests are at unescapable odds.").
IT IS THEREFORE ORDERED that the Application is granted in full as to all entries from January 12, 2004 forward, and the Application for the period from August 2, 2002, through January 9, 2004 is granted and denied as set out in the attached four pages; and
IT IS FURTHER ORDERED that Counsel shall prepare a form of order consistent with this ruling and taking into account the interim stipulated order (doc 73), which form of order shall calculate the exact amount of compensation and reimbursement to which Counsel is entitled and for treatment as an administrative claim and shall disallow for administrative claim treatment the remainder.