- Bookmark
- Share
- CaseIQ
IN RE FERKAUF, INC., (S.D.N.Y. 1985)
Summary of Opinion: In re FERKAUF, INCORPORATED (S.D.N.Y. Dec. 30, 1985)
Factual and Procedural Background
This appeal arises from a decision of Bankruptcy Judge Howard C. Buschman, III dated September 6, 1984 (reported at 42 B.R. 852), which fixed compensation for the trustee, Allan Feingertz, and the trustee's attorneys Alex Rosen, Paul Krohn, and David Helfant. An application for reconsideration of the bankruptcy judge's decision was denied on October 16, 1984. The appeal to the district court was brought by trustee Feingertz and attorneys Krohn and Helfant.
The underlying bankruptcy proceeding involves the investment firm Ferkauf, Incorporated, commenced in 1974. No distribution to creditors occurred until spring 1984; the fee applications at issue were made in 1984 as part of preparations to close out the estate. Rosen served as attorney for the trustee from 1974 to 1976; thereafter Krohn was attorney and Helfant assisted Krohn. Rosen applied for $38,500 and was awarded $10,200 (he did not appeal). Krohn and Helfant applied for $180,000, were awarded $84,000, and on appeal reduced their request to $144,000 but challenge the reduction to $84,000. The trustee applied for $4,000 and was awarded $2,400 and appeals that award.
Legal Issues Presented
- Whether the bankruptcy judge abused his discretion in awarding reduced fees to the trustee's attorneys and the trustee, including whether his factual findings (as to delay and nonproductivity) were clearly erroneous.
- Whether the bankruptcy judge correctly adjusted the requested hourly rate (requested $150/hour for the entire period) to an average of $100/hour.
- Whether the specific percentage reductions applied by the bankruptcy judge (20% for delay, 5% for ministerial services, and 5% for duplication) were justified under the applicable standard of review.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Matter of Futuronics Corp., 655 F.2d 463, 471 | Standard of review on appeal of a bankruptcy fee award: district court affirms unless the bankruptcy judge abused his discretion (failed to apply proper procedures or legal standards, or made factual findings that were clearly erroneous). | The district court applied this standard and found no abuse of discretion; it affirmed the bankruptcy judge's fee determinations. |
| Matter of First Colonial Corp. of America, 544 F.2d 1291, 1298, cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977) | Same standard of review for bankruptcy fee awards: affirm unless abuse of discretion or clearly erroneous factual findings. | The district court relied on this principle in upholding the bankruptcy judge's factual findings and fee reductions as not clearly erroneous or an abuse of discretion. |
Court's Reasoning and Analysis
The district court affirmed the bankruptcy judge's decision, relying principally on the bankruptcy opinion. The court stated the controlling standard: a bankruptcy judge's fee award will be affirmed unless there was an abuse of discretion — i.e., failure to apply proper procedures or legal standards, or clearly erroneous factual findings.
The court reviewed the bankruptcy judge's factual findings and conclusions concerning Krohn and Helfant's work. The bankruptcy judge had found that their services were characterized by delay and nonproductivity and that they failed adequately to expedite liquidation of the debtor's assets and distribution to creditors. The district court noted that the bankruptcy judge described both accomplishments and deficiencies in detail and found those findings to be balanced and reasonable.
The court summarized the measurable financial results attributed to Krohn and Helfant's legal efforts: an arbitration award of $26,400 against Kern, a securities lawsuit settlement of $40,000, and ten preference actions totaling $1,660 — about $70,000 in identified additions to the estate. The bankruptcy judge observed that the two major litigations were completed by 1979 and that the preference actions produced little after that date while fees requested greatly exceeded recoveries. The court accepted the bankruptcy judge's characterization of much of the work regarding sales of securities as relatively ministerial.
Regarding specific assets, the court noted the bankruptcy judge's finding that no steps were taken to liquidate Ferkauf's Napco stock until December 1980; although the stock later appreciated, the delay was a valid basis for criticizing the attorneys' productivity. The opinion acknowledges that Krohn and Helfant presented evidence suggesting the claims against Ferkauf over the stock were more serious than the bankruptcy judge believed, but the district court found the bankruptcy judge's overall findings of delay and lack of productivity justified in the context of modest results over a protracted proceeding.
The court also reviewed the bankruptcy judge's chosen "remedy": the judge reduced the fee application by 20% for delay, 5% for ministerial services, and 5% for duplication of effort. The district court found no reason to conclude those percentage reductions were clearly erroneous or an abuse of discretion.
On hourly rates, Krohn and Helfant had requested a flat $150/hour for all services over the eight-year period. The bankruptcy judge evaluated contemporaneous information about acceptable hourly rates in bankruptcy fee awards and set an average rate of $100/hour. Although on appeal Krohn and Helfant modified their requested recovery (seeking $150/hour only for services beginning in 1981 and lower rates for earlier years), the district court sustained the bankruptcy judge's adjustment to $100/hour as reasonable.
Finally, the trustee's appeal rested solely on the attorneys' arguments regarding nonproductivity and delay; having rejected those contentions as lacking merit, the district court also affirmed the trustee's reduced fee award.
Holding and Implications
Holding: The decision of the bankruptcy judge fixing compensation for the trustee and the trustee's attorneys is AFFIRMED.
Direct consequences on the parties: the district court affirmed the bankruptcy judge's award of $84,000 to Krohn and Helfant (from the $180,000 requested), affirmed the trustee Feingertz's award of $2,400 (from $4,000 requested), and Rosen's earlier award of $10,200 (from $38,500 requested) was not appealed. The court also sustained the bankruptcy judge's assessment of an average hourly rate of $100 and the percentage reductions (20% for delay, 5% for ministerial services, 5% for duplication).
No broader legal doctrines or new precedent were announced; the opinion applies existing standards of appellate review for bankruptcy fee awards and affirms the bankruptcy judge's exercise of discretion on the facts presented.
So ordered.
GRIESA, District Judge.
This is an appeal from a decision of bankruptcy Judge Howard C. Buschman, III, dated September 6, 1984, reported at 42 B.R. 852. Judge Buschman fixed the compensation for the trustee, Allan Feingertz, and the attorneys for the trustee, Alex Rosen, Paul Krohn and David Helfant. An application for reconsideration was made and was denied on October 16, 1984.
This appeal is brought by Feingertz, Krohn and Helfant. The decision of the bankruptcy judge is affirmed. The decision is thorough and comprehensive both as to the factual considerations and the discussion of legal authorities. This affirmance relies basically on the bankruptcy judge's opinion.
The bankruptcy proceeding relates to an investment firm, Ferkauf, Incorporated. The proceeding started in 1974. It was not until the spring of 1984 that any distribution was made, at which time there was an interim payment to creditors. The fee applications in question were made in 1984, preparatory to closing out the estate.
Alex Rosen was attorney for the trustee from 1974 to 1976. Thereafter, Paul Krohn was the attorney for the trustee, and David Helfant assisted Krohn.
Rosen applied to the bankruptcy judge for a fee of $38,500, and was awarded $10,200. Rosen has not appealed. Krohn and Helfant applied for a fee of $180,000. They were awarded $84,000. On this appeal, Krohn and Helfant have reduced their request to $144,000, but they appeal from the reduction to the lower $84,000 figure. The trustee Feingertz applied for compensation of $4,000, and was awarded $2,400. The trustee appeals.
The standard of review on an appeal of a fee award from a bankruptcy court to the district court is that the decision of the bankruptcy judge will be affirmed unless the bankruptcy judge has abused his discretion — i.e., failed to apply proper procedures or legal standards, or made factual findings that were clearly erroneous. Matter of Futuronics Corp., 655 F.2d 463, 471 (2d Cir. 1981); Matter of First Colonial Corp. of America, 544 F.2d 1291, 1298 (5th Cir.), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977); Bankruptcy Rule 8013.
In the present case, the bankruptcy judge found that the services of Krohn and Helfant were characterized by delay and nonproductivity, and that they failed to adequately fulfill their duty to expedite the liquidation of the debtor's assets and the disbursement of the proceeds to the creditors.
The bankruptcy judge described in detail the accomplishments of Krohn and Helfant as well as their deficiencies. His findings were balanced and reasonable.
The bankruptcy judge found that the legal efforts of Krohn and Helfant added roughly $70,000 to the value of the estate. This figure was the total amount of money which the estate derived from an arbitration against another investment firm (Kern), a lawsuit involving an issue of securities in which Ferkauf had participated, and ten preference actions. The arbitration award was $26,400. The lawsuit about the stock issue was settled for $40,000. The ten preference actions brought a total of $1,660. The bankruptcy judge pointed out that the two major litigations were completed by the year 1979. As to the ten preference actions, the judge noted that about three times as much in fees was requested as the money recovered in the actions. Also, after 1979 very little occurred in these actions except adjournments.
The bankruptcy judge considered that the results of these various proceedings plus the other results of the Krohn/Helfant legal efforts were of a modest nature. For instance, the Kern arbitration originally involved mutual claims between Ferkauf and Kern for fairly substantial sums of money. Ferkauf did succeed in defeating the claims of Kern and Ferkauf was awarded $26,400. At the same time, however, Ferkauf lost on its claims for a substantially larger amount than the $26,400. Thus the arbitration was largely awash.
A certain amount of work by Krohn and Helfant occurred in relation to the sale of securities held by Ferkauf. However, this work was to some extent ministerial. The sales were themselves mainly business transactions, requiring little skilled legal services.
Ferkauf owned stock in a company called Napco. No steps were taken to liquidate these securities until December 1980. Krohn and Helfant assisted in defending the estate against claims made by two individuals for a portion of this stock. There was a settlement favorable to Ferkauf. However, the bankruptcy judge felt that this transaction did not represent much of an accomplishment on the part of Krohn and Helfant, because of the delay of several years in attempting to liquidate the asset, and the fact that there was no indication that the claims against Ferkauf regarding the stock were especially strong. The finding of delay in regard to the handling of this asset is not clearly erroneous, although fortuitously the stock appreciated in value during the delay. As to the strength of the claims against Ferkauf regarding this stock, Krohn and Helfant have presented evidence indicating the matter was more serious than was thought by the bankruptcy judge.
However, as to the overall findings of a lack of productivity and delay in liquidating the estate, these findings are justified, when the matter is looked at in the context of the modest results which were achieved by the legal services in a very lengthy proceeding.
One reason why these findings of the bankruptcy judge should not be set aside, is that his actual "remedy" for the nonproductivity and the delay was only a relatively modest cut in the fee application. He discounted the application by only 20% because of delay, by 5% because of the ministerial nature of certain of the services, and by 5% because of duplication of effort. There is no reason to hold that these discounts were clearly erroneous or were an abuse of discretion.
A major component of the bankruptcy judge's reduction from the $180,000 claimed related to the hourly fee. Both Krohn and Helfant requested a flat hourly rate for all services over the entire eight-year period of $150 per hour. The bankruptcy judge made a careful evaluation of the information about hourly rates in connection with counsel in bankruptcy proceedings and fee awards during the period of time involved. The judge ruled that an average of $100 per hour was proper. On appeal, Krohn and Helfant object to this, but in fact they have gone a long way in conceding the bankruptcy judge's point. As already described, they have reduced their claim to $144,000. The basis of this is that they are seeking the $150 per hour figure only for the period beginning in 1981. For the years before that, Krohn seeks $100 per hour and Helfant seeks $125 per hour. Under all of the circumstances, it is held that the bankruptcy judge's adjustment of the hourly rate to $100 should be sustained.
In conclusion, Krohn and Helfant have not shown that the bankruptcy judge's fee award was an abuse of discretion or that his findings of fact were clearly erroneous. The fee award to Krohn and Helfant is affirmed.
As to the appeal of the trustee, it is based solely upon the arguments of Krohn and Helfant regarding the bankruptcy judge's findings about nonproductivity and delay. For the reasons already indicated, these arguments are without merit. The fee award to the trustee is affirmed.
So ordered.
Alert