Clarifying Bankruptcy Fee Approval: Proper Use of §§328 and 330 in Assadi v. Osherow

Introduction

In Assadi v. Osherow, the Fifth Circuit confronted recurring fee disputes in a long-running Chapter 7 bankruptcy case. Pro se debtor Mohammad Reza Assadi challenged two orders of the bankruptcy court: (1) an award of $70,000 in attorneys' fees to the Trustee’s general counsel under 11 U.S.C. § 330, and (2) approval of a flat fee of $60,000 for appellate "special counsel" under 11 U.S.C. § 328. Having affirmed similar rulings in three prior appeals, the Fifth Circuit once again reviewed the procedures and legal standards governing bankruptcy fee applications and reaffirmed the court’s broad discretion in awarding and structuring attorney compensation.

Summary of the Judgment

The Fifth Circuit affirmed both fee awards. First, it held that the bankruptcy court did not abuse its discretion under § 330 when it awarded $70,000 to general counsel—a figure well below the $95,450 lodestar supported by billing records—and provided a concise explanation referencing necessity and market rates. Second, the court ruled that the bankruptcy court properly preapproved a flat fee of $60,000 for Hopkins Law, PLLC as special appellate counsel under § 328(a). Although styled as a "modification," the application in substance was a second preapproval covering all future work on appeals, not a post‐employment change requiring a showing of unforeseeable developments.

Analysis

Precedents Cited

Barron & Newburger v. Tex. Skyline (In re Woerner), 783 F.3d 266 (5th Cir. 2015): Established that abuse-of-discretion review governs attorney‐fee awards in bankruptcy, encompassing both legal‐standard errors (de novo) and factual errors (clear error).
Krueger v. Torres (In re Krueger), 812 F.3d 365 (5th Cir. 2016): Reaffirmed due-process notice requirements and that pro se debtors receive constitutionally adequate notice when they file written objections.
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010): Defined the “reasonably calculated” notice standard under due process, cited by Krueger.
In re U.S. Golf Corp., 639 F.2d 1197 (5th Cir. 1981): Held that Rule 9014(d) mandates an evidentiary hearing only if there is a disputed material issue of fact relating to a fee application.
Peele v. Cunningham (In re Tex. Sec., Inc.), 218 F.3d 443 (5th Cir. 2000): Clarified that ex ante fee‐arrangements under § 328(a) require court approval at the outset to give attorneys compensation certainty.
In re ASARCO, L.L.C., 702 F.3d 250 (5th Cir. 2012): Emphasized the rigidity of § 328(a) preapproval and the requirement that any post-approval modification explain why unforeseen developments made the original terms improvident.
Shipes v. Trinity Indus., 987 F.2d 311 (5th Cir. 1993): Articulated the lodestar method—hours reasonably expended multiplied by a prevailing market rate.
CRG Partners Group v. Neary (In re Pilgrim’s Pride), 690 F.3d 650 (5th Cir. 2012): Stated that after calculating the lodestar, a court may adjust up or down under § 330 factors, but upward adjustments are rare.
In re Sylvester, 23 F.4th 543 (5th Cir. 2022): Limited § 330 awards to work requiring legal expertise, excluding ordinary trustee tasks.
In re Cahill, 428 F.3d 536 (5th Cir. 2005): Required bankruptcy courts to explain how each § 330 factor influenced the final fee award.
Daniels v. Barron (In re Barron), 325 F.3d 690 (5th Cir. 2003): Held that § 328(a) modifications must identify unforeseeable events justifying a change.

Legal Reasoning

The Fifth Circuit dissected two distinct statutory schemes:

Section 330(a) Awards (General Counsel)
• Trustee’s general counsel applied for fees after the work was done. Under § 330(a)(1)(A), courts award “reasonable compensation for actual, necessary services.”
• The court first computes the lodestar (190.9 hours × $500/hour = $95,450). Then it may adjust based on § 330 factors (time and labor, skill required, customary fees, results obtained, etc.).
• Here, the bankruptcy court awarded $70,000—well under the lodestar—and explained that the entries were “reasonable, necessary, and within market norms.” Despite its brevity, the explanation sufficed because the record made the lodestar and the necessity of the services clear.
Section 328(a) Preapproval (Appellate “Special Counsel”)
• Under § 328(a), fee terms must be approved at the engagement’s outset; modifications post-employment require a showing of “developments not capable of being anticipated.”
• The Trustee’s motion labeled the second application a “modification,” but it requested court approval of a flat $60,000 fee covering future work on all appeals—a second preapproval, not a post-hoc change.
• The court’s summary order approving the flat fee was proper. No unforeseeable-event analysis was needed because the application did not alter an existing § 328 plan but sought approval of a new one. The flat fee capped expenses in light of the debtor’s relentless appeals.

Impact

Assadi v. Osherow clarifies key points for bankruptcy practitioners:

Strict distinction between § 328(a) preapproval and § 330(a) post-service fee awards.
Bankruptcy courts have wide discretion in fee determinations, but must articulate the lodestar and link adjustments to statutory factors.
Rule 9014 does not mandate hearings absent disputed material facts; strategic objections must identify genuine fact disputes to force evidentiary hearings.
Flat-fee arrangements can effectively cap trustee counsel costs in protracted, repetitive litigation—so long as filed as § 328(a) applications, not disguised § 330 motions.
Future fee applicants should draft clear engagements and justify any modifications with precise findings when unforeseeable changes arise.

Complex Concepts Simplified

Lodestar Method: A starting point for fee awards—hours reasonably spent × prevailing hourly rate.
11 U.S.C. § 330: Governs fee applications after services are rendered; courts calculate the lodestar and may adjust for factors like complexity, results, customary rates.
11 U.S.C. § 328(a): Requires fee terms to be approved at or before engagement; any post-approval change demands a showing of unforeseeable developments.
Rule 9014(d): Bankruptcy Rule requiring an evidentiary hearing if a motion involves disputed material facts; absent such disputes, written submissions suffice.
Abuse of Discretion Standard: An appellate court will not disturb a bankruptcy court’s fee order unless it applies the wrong legal standard, uses improper procedures, or makes clearly erroneous factual findings.

Conclusion

Assadi v. Osherow reaffirms the balance between protecting bankruptcy estates from unreasonable legal fees and ensuring fair compensation for professionals. By upholding the $70,000 § 330 award and the $60,000 § 328 flat fee, the Fifth Circuit provides a roadmap for structuring fee applications, distinguishing between ex ante and ex post compensation schemes, and leveraging flat fees to deter abusive litigation tactics. This decision will guide trustees, counsel, and debtors in future fee disputes, promoting clarity and efficiency in bankruptcy practice.