ORDER ON MOTION FOR DISGORGEMENT AND PAYMENT OF FEES1
On September 10, 2025, the court heard the Trustee's Motion for Disgorgement and Payment of Fees brought in the above-referenced Chapter 11 Subchapter V proceeding ("Disgorgement Motion"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
BACKGROUND
On February 6, 2025, C.I.I., Inc. ("Debtor") filed a voluntary Chapter 11 Subchapter V petition ("Petition"). (ECF No. 1). The Petition was filed by the Law Offices of Corey B. Beck, P.C. ("Attorney Beck") on behalf of the Debtor. The Petition attests that the Debtor operates its
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business at 6001 South Decatur Blvd., Suite A, Las Vegas, NV 89118 ("Business Address") and that John B. Ball is the authorized representative of the Debtor. The case was assigned for administration to Chapter 11 Subchapter V bankruptcy trustee Jeanette McPherson ("Trustee"). (ECF No. 13). A notice of bankruptcy filing ("Bankruptcy Notice") was served by first class mail on all parties in interest. (ECF No. 10).
On February 6, 2025, Debtor filed its schedules of assets and liabilities ("Schedules"), statement of financial affairs ("SOFA"), and other information required by Sections 521(a), 1187, and 1116. (ECF Nos. 1 and 5). A meeting of creditors required by Section 341(a) was scheduled for March 13, 2025 ("341 Meeting").
On February 12, 2025, Debtor filed a Disclosure of Compensation of Attorney for Debtor(s) ("Compensation Disclosure") required under Section 329(a) and Bankruptcy Rule 2016(b). (ECF No. 16). According to that Compensation Disclosure, Debtor paid Attorney Beck a $20,000 pre-petition retainer ("Retainer") from which he paid the $1,738 bankruptcy filing fee.
On February 28. 2025, Debtor filed an Application to Employ as Attorney ("Employment Application") to retain Attorney Beck as its attorney in the Chapter 11 proceeding. (ECF No.
22). The application was supported by Attorney Beck's declaration. (ECF No. 23). On March 13, 2025, the 341 Meeting concluded with Attorney Beck appearing for the Debtor. (ECF No. 29). On March 17, 2025, Debtor filed additional financial documents according to Section 1116. (ECF No. 30). On March 19, 2025, Trustee filed a Stipulation By and Between the United States Trustee and Debtor as to Employment Application requiring Attorney Beck to fix deficiencies in the Employment Application. (ECF No. 31). On the same date, Debtor filed its first Status Report ("First SR"). (ECF No. 32). On March 21, 2025, Debtor filed Amended Non-Individual Schedule E/F. (ECF No. 34). On April 2, 2025, Debtor filed an Amended Disclosure of Compensation of Attorney for Debtor ("Amended Compensation Disclosure") that listed the source of Attorney Beck's compensation as Patricia and John Ball, as well as Patricia Ball's mother, Lavonne Pape. (ECF No. 37). On April 3 and 11, 2025, Debtor filed two Amended Statements of Financial Affairs for Non-
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Individual. (ECF Nos. 41 and 42). On April 17, 2025, Debtor filed Monthly Operating Reports for Filing Periods Ending February 2025 and March 2025. (ECF Nos. 45 and 46). On April 18, 2025, the court entered an order Granting the Employment Application which allowed the Debtor to hire Attorney Beck as its Chapter 11 attorney in this case. (ECF No. 48).
On May 7, 2025, Debtor filed an Application to Employ Accountant ("Accountant Application") listing Lisa Jones, CPA ("Accountant") as its proposed accountant. (ECF No. 52). The Declaration of Lisa Jones, CPA, accompanied the Accountant Application. (ECF No. 54). On May 7, 2025, Debtor also filed a Chapter 11 Small Business Subchapter V Plan ("Plan"). (ECF No. 55). On May 13, 2025, Debtor filed its second Status Report ("Second SR"). (ECF No. 57).
On May 28, 2025, Trustee filed a Motion to Dismiss or Convert Chapter 11 Subchapter V Case ("Dismissal Motion") and an accompanying Declaration of Bryan G. Coleman ("Coleman Dismissal Declaration"). (ECF Nos. 60 and 61). On June 6, Trustee filed an Application for Compensation requesting $5,630.30 in fees and expenses for services rendered as Subchapter V trust in the Chapter 11 proceeding. (ECF No. 65).
On June 10, 2025, Debtor filed a third Status Report and amended it the same day ("Third SR"). (ECF Nos. 71 and 72). On June 18, 2025, Debtor filed a Monthly Operating Report for Filing Period Ending April 2025. (ECF No. 75).
On June 25, 2025, Debtor filed a Response and Request for Extension of Time in Opposition to Trustee's Dismissal Motion ("Dismissal Response"). (ECF No. 76). On July 2, 2025, Trustee filed a Supplemental Application for Compensation requesting $6,255.30 in fees and expenses for services as Subchapter V trustee. (ECF No. 77). On July 8, 2025, Debtor filed a fourth Status Report ("Fourth SR"). (ECF No. 78). On July 9, 2025, the court entered an order granting Trustee's Application for Compensation in full, awarding the Trustee $6,255.30. (ECF No. 79). On that date, the court heard the Dismissal Motion, at which Attorney Beck appeared as well as the Trustee. (ECF No.
80). No written opposition was filed to the Dismissal Motion.
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On July 11, 2025, the court entered its order dismissing the Chapter 11 proceeding ("Dismissal Order"). (ECF No. 82).
On August 4, 2025, Trustee filed the instant Disgorgement Motion along with her supporting declaration. (ECF Nos. 85 and 86). On August 26, 2025, Attorney Beck filed an Opposition to the Disgorgement Motion ("Disgorgement Opposition"). (ECF No. 90). On September 3, 2025, Trustee filed a Reply to the Disgorgement Opposition ("Disgorgement Reply"). (ECF No. 92). On September 8, 2025, Attorney Beck filed a Supplement to his Disgorgement Opposition ("Disgorgement Supplement") that contained an itemized list of the hours spent on Debtor's bankruptcy matters ("Billing Statement"). (ECF No. 93).
DISCUSSION
"The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. § 105(a). This right includes enumerated and inherent powers.
Under Section 329(b), the court can order a debtor's attorney to return any payment that exceeds the reasonable value of the attorney's services.2The court, by motion of the U.S. Trustee or on its own, may determine whether the amount the debtor paid to their attorney is excessive after an order for relief is entered regardless of whether payment has been made. See FED.R.BANKR.P. 2017(b). This power is well recognized in the Ninth Circuit. See e.g., Am. L. Ctr. PC v. Stanley (In re Jastrem), 253 F.3d 438, 443 (9th Cir. 2001) ("The bankruptcy court had authority under 11 U.S.C. § 329(b) and Federal Rule of Bankruptcy Procedure 2017(b) to order [the attorney] to return to [the debtor] any attorneys' fees that exceeded the reasonable value of the services provided.").
Even if Section 329(b) and Bankruptcy Rule 2017(b) did not so provide, the bankruptcy court has "inherent authority over the debtor's attorney's compensation." L. Offs. of Nicholas A.
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Franke v. Tiffany (In re Lewis), 113 F.3d 1040, 1045 (9th Cir. 1997); see also In re Gilsvik, 673 B.R. 745, 751 (B.A.P. 9th Cir. 2025).
"Section 330 sets out the standard by which courts should determine the reasonableness of fees under § 329." Jastrem, 253 F.3d at 443. See also Hale v. U.S. Tr. (In re Basham), 208 B.R. 926, 931 (B.A.P. 9th Cir. 1997) ("The standard applied under § 329(b) to determine the reasonable value of fees is set forth in § 330."), aff'd sub nom., Hale v. U.S. Tr. (In re Byrne),
152 F.3d 924 (9th Cir. 1998); Nakhuda, 544 B.R. at 902; Gilsvik, 673 B.R. at 751 ("When assessing the reasonable value of the services rendered by an attorney to a debtor, the court is directed to consider the same criteria set forth for determining the proper amount of compensation for estate professionals under § 330(a).").
The court may award an attorney "reasonable compensation for actual, necessary services rendered" and "reimbursement for actual, necessary expenses." 11 U.S.C. § 330(a)(1). The court can also "award compensation that is less than the amount of compensation that is requested." 11 U.S.C. § 330(a)(2). "In determining the amount of reasonable compensation,"
the court should consider:
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed;
(E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and
(F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
11 U.S.C. § 330(a)(3). The Ninth Circuit articulates the test for a reasonable fee allowance as five questions:
1. Were the services authorized?
2. Were the services necessary or beneficial to the administration of the estate at the time they were rendered?
3. Are the services adequately documented?
4. Are the fees requested reasonable including consideration of the factors in Section 330(a)(3)?
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5. Did the professional exercise reasonable billing judgement?
Leichty v. Neary (In re Strand), 375 F.3d 854, 860 (9th Cir. 2004), citing Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co. (In re Mednet, MPC Corp.), 251 B.R. 103, 108 (B.A.P. 9th Cir. 2000).
The reasonable value of services rendered by a debtor's attorney depends on the particular circumstances of each case. See Nakhuda, 544 B.R. at 902; Lobel & Opera v. U.S. Tr. (In re Auto Parts Club), 211 B.R. 29, 33 (B.A.P. 9th Cir. 1997). See also Gilsvik, 673 B.R. at 751 ("[T]he reasonable value of services rendered by a debtor's attorney is a question of fact to be determined by the bankruptcy court.");
The bankruptcy court has wide discretion in interpreting the criteria of Section 330(a) and has sole discretionary power to award reasonable fees to an attorney. See Gill v. Wittenburg (In re Fin. Corp. of Am.), 114 B.R. 221, 224 (B.A.P. 9th Cir. 1990), aff'd, 946 F.2d 689 (9th Cir. 1991); see also Gilsvik, 673 B.R. at 751 ("As the fact finder, the bankruptcy court has great discretion in evaluating the sufficiency of the evidence provided by an attorney in support of the fees being requested.") (citation omitted); First Interstate Bank of Nev., N.A., v. CIC Inv. Corp. (In re CIC Inv. Corp.), 192 B.R. 549, 554 (B.A.P. 9th Cir. 1996) ("As the fact finder, the bankruptcy court must evaluate the sufficiency of the evidence."); Hastings v. U.S. Trustee (In re Agyekum), 225 B.R. 695, 699 (B.A.P. 9th Cir. 1998) ("A trial court has the power to establish a presumptive 'reasonable value' of legal fees in consumer bankruptcies, and to limit fees to a certain level.").
"The burden is upon the applicant to demonstrate that the fees are reasonable." Basham,
208 B.R. at 931-32; Gilsvik, 673 B.R. at 751. See also Hensley v. Eckerhart, 461 U.S. 424, 437 (1983) ("[F]ee applicant bears the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates."); In re L.V. Monorail Co., 458 B.R. 553, 557 (Bankr. D. Nev. 2011) ("[T]he fee applicant must submit detailed evidence supporting the fee application.").
In the instant case, the Trustee requests that Attorney Beck disgorge the Retainer to make such funds available to pay the Fee Order. The Trustee argues that counsel did not provide
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reasonable value as the work was of poor quality, not beneficial to the Debtor, and detrimental to the estate. See Disgorgement Motion at 36 and 37. Trustee asserts a number of examples of Attorney Beck's work that fell below the expected standard, including the failure to get a plan confirmed and failure to confirm the existence of workers' compensation insurance that led to the dismissal of the case. See Disgorgement Motion at 36; Disgorgement Reply at 2:5-15. Trustee therefore maintains that counsel should disgorge the Retainer under Section 329(b). See Disgorgement Motion at 32.
Attorney Beck responds that disgorgement of the Retainer should be denied because the Trustee should be required to get a court order authorizing a Subchapter V trustee to file such a motion and that the Retainer was reasonable. See Disgorgement Opposition at 2:14-16. He argues that he has demonstrated his competence in previous Chapter 11 cases before this court. The Trustee correctly asserts that she is entitled to bring this Disgorgement Motion as a party in interest under Section 1109(b). Because Attorney Beck provided evidence by submitting his Billing Statement for services rendered to Debtor, the court will apply the five- step test for determining whether his attorney's fees are reasonable as outlined in Strand. 375 F.3d at 860.
1. Were the services authorized?
The record reflects that Attorney Beck's were authorized. There is no dispute that the Debtor filed the Employment Application requesting authority to retain Attorney Beck to act as Chapter 11 counsel in this proceeding. Attorney Beck addressed any concerns raised by the United States Trustee. This court approved the Employment Application making Attorney Beck the attorney for the Debtor in this case. The Debtor filed all of its motions in this case through Attorney Beck as its attorney. The Debtor filed the Compensation Disclosure listing Attorney Beck and his Retainer. The Retainer signifies the payment was made to Attorney Beck for all his services rendered throughout this bankruptcy case. By granting the Employment Application, the court expressly authorized the Debtor to retain Attorney Beck for professional services to be provided during this Chapter 11 proceeding.
2. Were the services necessary or beneficial to the administration of the estate at the time they were rendered?
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"[A] bankruptcy court may award compensation if the services rendered were not unnecessarily duplicative and if the services rendered were both reasonably likely to benefit the debtor's estate and were necessary for the administration of the case." Smith v. Edwards & Hale, Ltd. (In re Smith), 317 F.3d 918, 926 (9th Cir. 2002), abrogated on other grounds by Lamie v. U.S. Tr., 540 U.S. 526 (2004).
"[S]ervices that are reasonably likely to provide an identifiable, tangible and material benefit to the debtor's estate can be compensated, even if they do not actually provide such a benefit." Id.; L.V. Monorail, 458 B.R. at 556. This is because the court cannot rely on hindsight in the analysis. "[A] professional need demonstrate only that the services were reasonably likely to benefit the estate at the time rendered." Ferrette & Slater v. U.S. Tr. (In re Garcia), 335 B.R. 717, 724 (B.A.P. 9th Cir. 2005) (emphasis added). See also Mednet, 251 B.R. at 108; L.V. Monorail, 458 B.R. at 556; Barron & Newburger, P.C. v. Texas Skyline, Ltd. (In re Woerner),
783 F.3d 266, 276 (5th Cir. 2015).
"Benefit to the estate is not restricted to only monetary benefit." In re Crown Oil, Inc.,
257 B.R. 531, 540 (Bankr. D. Mont. 2000); In re Berg, 268 B.R. 250, 260 (Bankr. D. Mont. 2001). "Another important consideration is whether the services rendered" complied with the Bankruptcy Code and procedures to allow "for the orderly and prompt disposition of the bankruptcy cases and related adversary proceedings." Crown Oil, 257 B.R. at 540; Berg, 268 B.R. at 260-61.
While the court will consider the totality of the circumstances, it need not
"microscopically examine and weigh every strategic decision made by [an attorney] throughout the chapter 11 case." In re A.W. Logging, Inc., 356 B.R. 506, 516 (Bankr. D. Ida. 2006).
"The Court does not expect the attorney to succeed in every endeavor he undertakes on behalf of the client. But the endeavor for which the estate is expected to pay must be reasonably calculated to produce a benefit to the estate." Crown Oil, 257 B.R. at 541; Berg, 268 B.R. at
261. The Fifth Circuit stated the test as:
In assessing the likelihood that legal services would benefit the estate, courts adhering to a prospective standard ordinarily consider, among other factors, the probability of success at the time the services were rendered, the reasonable costs
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of pursuing the action, what services a reasonable lawyer or legal firm would have performed in the same circumstances, whether the attorney's services could have been rendered by the Trustee and his or her staff, and any potential benefits to the estate (rather than to the individual debtor).
Woerner, 783 F.3d at 276.
Accordingly, no matter what services the attorney undertook, "the fact that [the attorney] did not ultimately prevail is not dispositive." Mohsen v. Wu (In re Mohsen), 506 B.R. 96, 108 (N.D. Cal. 2013); Woerner, 783 F.3d 266 ("Whether the services were ultimately successful is relevant to, but not dispositive of, attorney compensation."). Moreover, "[t]he fact that the Chapter 11 Plan was ultimately not confirmed does not, by itself, bar recovery of compensation for services performed in the Chapter 11 case." Crown Oil, 257 B.R. at 541; Berg, 268 B.R. at 261; Miller Auto., 521 B.R. at 327. Nevertheless, "whether a reorganization is successful is a factor to be considered in determining whether a debtor's counsel's services provide a benefit to the estate." Crown Oil, 257 B.R. at 541; Berg, 268 B.R. at 261.
"While it is not necessary to have a successful reorganization in order for debtor's counsel to be awarded fees, fees may be denied when counsel should have realized that reorganization was not feasible and therefore services in that effort did not benefit the estate."
Keate v. Miller (In re Kohl), 95 F.3d 713, 714 (8th Cir. 1996). "Chapter 11 cases which lack viable chances of reorganization may place the fees of counsel at risk." Crown Oil, 257 B.R. at 541; Berg, 268 B.R. at 261.
When it becomes obvious during a Chapter 11 that little or no hope of a reorganization exists and Debtor's counsel permits the Debtor to continue operations and to incur debts to the detriment of the estate and creditors, then the bankruptcy court has a duty to carefully and thoroughly scrutinize the services of the attorney and any professional.
Crown Oil, 257 B.R. at 542. "Attorneys and other professionals should not necessarily be blamed for the lack of management and the lack of success of a Chapter 11 debtor, but they should not be rewarded for stringing a bad case out for a lengthy period of time." Id. at 543; Berg, 268 B.R. at 262; Needler, 536 B.R. at 836; In re Huffman, 502 B.R. 205, 211 (Bankr. S.D. Ohio 2012) ("Most of the services performed in this case were in preparation of a plan which had no realistic hope of confirmation.").
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Likewise, courts hold that attorneys cannot be compensated for filing Chapter 11 cases in bad faith that are "designed only to manipulate the bankruptcy process and delay and harass creditors." In re Kile, 345 B.R. 182, 190 (Bankr. D. Ari. 2004); Needler, 536 B.R. at 836 ("It is apparent that his only success was stringing along a case that should never have been filed in the first place."). Put simply, "the fact that a debtor derives personal benefit from the delay of collection efforts against him or her due to the bankruptcy case does not constitute a benefit for purposes of awarding compensation." Huffman, 502 B.R. at 211-12, quoting In re Polishuk, 258 B.R. 238, 249 (Bankr. N.D. Okla. 2001).
Some factors that courts consider when determining whether the reorganization was possible or proper include: whether the reorganization would result in payment for creditors; whether a Chapter 11 filing was an advisable course for the debtor; whether the debtor was better off with a Chapter 7 liquidation at the start of the case; whether the attorney performed a reasonable investigation into the circumstances that gave rise to the bankruptcy filing; the conditions of the debtor's operations, finances, inventory, inability to obtain funding, lack of records and shareholder discord; whether the attorney filed a plan they knew could not be confirmed or executed or that does not explain the full bankruptcy circumstances; whether the attorney knew at any point in the proceeding that there was little or no hope of reorganization and allowed the debtor to continue operations and incur debts to the detriment of the estate and creditors; and failing to file a motion to dismiss. See Auto Parts, 211 B.R. at 34; In re Seare, 493 B.R. 158, 218 (Bankr. D. Nev. 2013); In re Dean, 401 B.R. 917, 923 (Bankr. D. Ida. 2008). Despite imposing sanctions for taking on bad bankruptcy cases, courts also acknowledge that there is "uncertainty faced by professionals in undertaking representation of a debtor in a difficult case, perhaps with a difficult client." Crown Oil, 257 B.R. at 543; Berg, 268 B.R. at
262. Thus, courts have awarded partial fees to attorneys that did some necessary and beneficial work in bankruptcy cases with no hope of reorganization. For example, in Crown Oil, the court awarded a portion of the requested compensation because the attorneys compiled and assembled the schedules and statements, represented the debtor in the Section 341 meeting, continued representation after conversion from Chapter 11 to Chapter 7, and provided the Chapter 7
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Trustee with services, records, and information regarding possible preference actions against shareholders. 257 B.R. at 543-44; see also Berg, 268 B.R. at 262 (awarding partial compensation for compiling and assembling debtor's schedules and statements); In re Lantz, 643 B.R. 614, 624-25 (Bankr. D. Ida. 2022) (requiring attorney to only disgorge part of the fees received because the attorney successfully filed the petition and schedules, represented debtor at the Section 341 meeting, and represented debtor through receiving a discharge). In this case, the court concludes that Attorney Beck provided the Debtor with necessary and beneficial services. Counsel performed many of the same services as the attorney in Crown Oil. Attorney Beck filed the Debtor's petition, financial statements, and schedules and updated them as needed. Furthermore, counsel represented Debtor at the 341 Meeting and continued representation up until dismissal of the case. Like the attorneys in Lantz and Huffman, Attorney Beck also submitted a Plan for reorganization.
The Trustee argues that Attorney Beck significantly delayed submitting the plan and incurred unnecessary fees during that time that were detrimental to the estate. See Disgorgement Motion at ¶¶ 36 and 37. Trustee also asserts that counsel delayed hiring an accountant to help with the plan projections which further harmed the estate. Id. at 36. A review of the Billing Statement, however, reflects that Attorney Beck worked to acquire the information needed for the plan and to hire the Accountant during that alleged delay. The Billing Statement entries clearly show the additional information counsel requested and that counsel continued working on the Plan from April 2025 through May 2025 when the plan was filed. Furthermore, there are multiple revisions of the plan through June 2025 that allegedly incorporated changes requested by Trustee. There are also several Billing Statement entries showing the delay in hearing back from the Accountant in order to hire the Accountant and have the proper information to draft the Plan. Multiple entries show emails to the Accountant requesting his availability to speak and counsel leaving voicemails. Thus, the court will not find Attorney Beck responsible for the delay.
Trustee argues that Attorney Beck offered contradictory information in stating that he had received financial projections for the Plan but was also waiting for the financial projections. See
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Dismissal Motion at ¶¶ 19 & n.3 and 45; see also Coleman Dismissal Declaration at ¶¶ 21. In the Second SR, Attorney Beck indicated that he had received Plan projections from the Accountant for the initial Plan that was filed May 7. See Second SR at 1:23-24. In the Dismissal Response, counsel also stated that he was seeking financial projections from the Accountant to amend the Plan. See Dismissal Response at 3:15-20. A straightforward reading of those representations is that counsel was procuring updated financial projections. There were several necessary amendments to the Plan that would require updated projections. The Billing Statement shows that Attorney Beck received the updated Plan projections on June 26 after Debtor filed the Dismissal Response on June 23. Thus, both statements from Attorney Beck can be true rather than contradictory.
There remains the question of whether Attorney Beck should have known that reorganization was not possible given that the case was ultimately dismissed. The case was dismissed primarily because the Debtor's workers' compensation insurance had lapsed for over a year and counsel failed to confirm whether the coverage had been reinstated. Attorney Beck should have known about the lapse of insurance coverage or could have found out about it with little investigation into the circumstances surrounding the bankruptcy. Belatedly, the Debtor actually did manage to obtain workers' compensation coverage by the end of the bankruptcy proceeding. Therefore, the reorganization was not factually impossible, and Attorney Beck might not have anticipated that the case would fail.
Given that Attorney Beck performed all the expected duties during the bankruptcy case and did not have reason to believe that the bankruptcy case would ultimately fail, the court concludes his services were necessary and beneficial to the estate at the time they were rendered.
3. Are the services adequately documented?
"A starting point for an evaluation of the reasonableness of the fees is an explanation that discloses what was done, when it was done, by whom it was done, and how long it took (i.e., a description of the 'actual ... services rendered')." In re Castorena, 270 B.R. 504, 515 (Bankr. D. Ida. 2001); Crown Oil, 257 B.R. at 538-39. "Under Rule 2016(a), a 'detailed statement' of services rendered is required." A.W. Logging, 356 B.R. at 518, citing CIC Inv. Corp., 192 B.R.
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549. See also Roderick v. Levy (In re Roderick Timber Co.), 185 B.R. 601 (B.A.P. 9th Cir. 1995); L.V. Monorail, 458 B.R. at 557. The list of services need not be perfect, but it must be
"sufficiently descriptive of the services rendered and the expenses incurred." CIC Inv. Corp.,
192 B.R. at 554. If the attorney does not provide sufficient evidence such as contemporaneous time records, its fee claim will likely be denied. See Jastrem, 253 F.3d at 443. "If the evidence supporting a fee application is too vague or insufficient to allow for a fair evaluation of the work done and the reasonableness and necessity for such work, the court should disallow compensation for such services." L.V. Monorail, 458 B.R. at 557 (citation and internal quotation marks omitted). Descriptions such as "telephone conversation with [person]," "meeting with [attorney]," or "email to [person]" are not sufficient. See A.W. Logging, 356 B.R. at 518. Having reviewed the record, the court concludes that the Billing Statement provides adequate documentation. The Billing Statement entries make it clear what Attorney Beck or his paralegal was doing, what day the services were performed, whether it was Attorney Beck or his paralegal doing the work, and the amount of time it took to provide the services down to a tenth of an hour. In short, the Billing Statement includes more detail than the descriptions at issue in A.W. Logging and is thereby adequately documented.
4. Are the fees requested reasonable including consideration of the factors in Section 330(a)(3)?3
"Pursuant to 11 U.S.C. § 329(b), this court has the discretion to review any pre-petition fee agreement to assure that the compensation does not exceed the reasonable value of the services rendered." Sundquist v. Bank of Am., N.A. (In re Sundquist), 576 B.R. 858, 877 (Bankr. E.D. Cal. 2017); In re Alvarado, 496 B.R. 200, 212 (N.D. Cal. 2013). The question is not how much time the attorney spent on the case but whether what "he was paid was excessive for what he accomplished for debtor in this case." Nakhuda, 544 B.R. at 903; Digesti & Peck v.
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Kitchen Factors, Inc. (In re Kitchen Factors, Inc.), 143 B.R. 560, 562 (B.A.P. 9th Cir. 1992); In re Sponhouse, 477 B.R. 147, 155 (Bankr. D. Nev. 2012).
"[O]ne of the important purposes of § 329 is to ensure that attorneys provide competent representation to debtors." Dean, 401 B.R. at 923. If "the Court determines that the services were incompetently performed and therefore have no value, then such services cannot be compensated." In re Wilde Horse Enters., Inc., 136 B.R. 830, 844 (Bankr. C.D. Cal. 1991). "If a bankruptcy court finds that an attorney fails to competently perform his or her duties, an order requiring the attorney to disgorge fees pursuant to § 329(b) is proper." Dean, 401 B.R. at 923; Seare, 493 B.R. at 224-25 (sanctioning debtor's attorney that failed to competently represent debtor); In re Smith, 436 B.R. 476 (Bankr. N.D. Ohio 2010) ("Services charged by a debtor's attorney which are of poor quality and/or which do not comply with an attorney' ethical duties are not reasonable and provide grounds for the disgorgement of fees for purposes of § 329(b)."). In other cases, this court has weighed the competence of debtors' attorneys in determining reasonable attorney's fees on a handful of occasions.
In In re Spickelmier, 469 B.R. 903 (Bankr. D. Nev. 2012). this court held that "[t]he work counsel performed for the Debtors in this case reflects a lack of competence and diligence that does not deserve to be compensated." Id. at 914. The attorney committed a laundry list of faux pas. First, the attorney filed a Chapter 13 bankruptcy case for which the debtors were not eligible because their debt limit exceeded the statutory limit. Id. The attorney then negotiated a stipulation for conversion or dismissal with the Chapter 13 Trustee and failed to comply with it. Id. The failure to comply led to the dismissal of the case. Id. The attorney sought reconsideration but failed to appear at the hearing on the motion. Id. Making matters worse, the attorney moved to shorten the time on a motion by using a motion the Court had already denied and cited no additional authority in support of the new motion. Id. When asked to show cause for these actions, the attorney provided no support at the hearing. Id. Given these transgressions, the Court found the attorney's services to be of such poor quality that their reasonable value was $0.00. Id.
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In Sponhouse, this court held that the attorney's "representation of the Debtors reflects both a lack of competence and diligence." 477 B.R. at 155. The debtor paid the attorney $1,500 to file a Chapter 7 bankruptcy case despite the attorney having never filed a bankruptcy case. Id. The attorney outsourced the filing to an experienced bankruptcy paralegal which resulted in a skeletal petition and delayed schedules. Id. Neither the attorney nor the debtors reviewed the first filing, nor did the debtors review or sign the filings in the second Chapter 7 case. Id. The attorney was allegedly fired but did not attempt to withdraw from the case or advise the Court of any issues with the debtors. Id. Compounding the situation, the attorney did not respond to or appear at the hearing for the Trustee's dismissal motion. Id. Given all that, this court had no issue finding that the compensation exceeded the reasonable value of the services rendered to the Debtor in the Chapter 7 cases that the attorney should not have brought to begin with. Id. Though outside the Ninth Circuit, Huffman provides facts similar to the case at hand. In that case, the attorney initially filed the case under Chapter 7 before converting it to Chapter 13. Huffman, 502 B.R. at 207. The debtor filed an initial plan listing funding that would primarily come from liquidating real property. Id. Creditors filed objections that the plan was insufficient, and the attorney went on to file three amended plans. Id. at 207-08. The attorney was given one last opportunity to amend the plan, but the debtor chose to dismiss after almost a year with no confirmed plan. Id. at 208. The court noted that about forty percent of the hours billed by the attorney "were incurred after the Court denied confirmation of Debtor's Second Amended Plan and after the Court expressed serious concern about the feasibility of Debtor's plan in the Chapter 13 context." Id. at 209-210. Additionally, the attorney "failed to properly take into account or address the Debtor's significant burden of demonstrating the feasibility of a plan." Id. at 210. Because "[a] modicum of investigation into existing law[] should have suggested to Debtor's counsel that all the services he was providing were unlikely to produce a confirmable Chapter 13 plan" the court held that the attorney was required to disgorge almost half of the fee. Id. at 210-
212.
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In the instant proceeding, Attorney Beck performed Chapter 11 services with more competence than the attorney in Huffman and far more than the attorneys in Spickelmier and Sponhouse.
The Trustee asserts that Attorney Beck performed poor quality work because he failed to expeditiously hire the Accountant, failed to confirm that the workers' compensation insurance had renewed, and submitted a deficient and inaccurate Plan. See Disgorgement Motion at 36 and 37; Disgorgement Reply at 2:5 to 6:12.
The court disagrees that Attorney Back did not show the requisite skill in hiring the Accountant. The Billing Statement reflects that counsel began emailing the Accountant for employment purposes on March 5. Counsel prepared the letter to hire the Accountant the next day. Accountant sent their fee structure by March 17. As Trustee noted, Counsel had the requisite information to hire the Accountant on March 19. Further Billing Statement entries from that point indicate that Attorney Back continued to contact the Accountant and provided reminders of deadlines. It appears from these messages, however, that the Accountant began work for the Debtor even if the court did not receive the Accountant Application until May 7. Furthermore, counsel submitted the proposed plan on May 7. Even if Attorney Beck did not include the Accountant's projections at that point, the record reflects that counsel functionally hired the Accountant well in advance of May 7. The court is not inclined to punish counsel for another professional's delays in providing the information. Thus, the court finds that counsel sought employment of the Accountant with the requisite competence for hiring on a bankruptcy timeline.
On the other hand, the court agrees that Attorney Beck should have been more diligent in confirming the Debtor's renewal of workers' compensation insurance. As Trustee correctly observes, counsel knew on June 26 that the Debtor's workers' compensation insurance renewed and failed to obtain verification of the renewal before the Dismissal Hearing on July 9. There is no Billing Statement entry for counsel or his paralegal requesting a copy of the policy from the insurance company, nor is there any email to the Debtor requesting the same. The court recognizes that Attorney Beck is not entirely at fault because the Debtor also failed to send the
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insurance information despite saying it would. Nevertheless, it would have been simple for counsel to take those additional steps to obtain verification of the workers' compensation insurance. Failing to do so shows a meaningful lack of diligence especially since that failure significantly contributed to the case being dismissed.
The court also agrees that the proposed Plan filed by Attorney Beck was insufficient. As Trustee correctly notes, the Plan failed to include a liquidation analysis or financial projections, incorrectly classified creditors, failed to address the Debtor's non-residential real property lease, failed to include the payment amount to the creditor owed the most, and failed to provide an explanation for the two percent pro-rata share for each unsecured creditor. See Disgorgement Motion at ¶¶ 17, 21, and 36. These are material defects that would prevent plan confirmation. While the status reports and Billing Statement show that counsel worked on amendments to the plan, the court never received an amended Plan before the case was dismissed. The failure to submit an amended Plan within two months of the first version being filed suggests that Attorney Beck did not perform this work with sufficient diligence.
Because the court concludes that Attorney Beck performed the majority of the services with sufficient competence, however, the court must determine the reasonable value for the services rendered.
In the Ninth Circuit, the primary method for determining whether an attorney's fee is reasonable is the "lodestar" method. See Burgess v. Klenske (In re Manoa Fin. Co., Inc.), 853 F.2d 687, 691 (9th Cir. 1988). Basically, "[a] compensation award based on a reasonable hourly rate multiplied by the number of hours actually and reasonably expended is presumptively a reasonable fee." Id. In setting the lodestar, the bankruptcy court may consider fees awarded to others in the same locality for similar cases and may rely on its 'own knowledge of customary rates and [its] experience concerning reasonable and proper fees.'" Gilsvik, 673 B.R. at 751, quoting Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir. 2011). Likewise, the attorney "may include proof 'that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.'" Id. at 751-52, quoting Blum v. Stenson, 465 U.S. 886, 895 n.11 (1984). Even if the court utilizes the
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lodestar method, "[t]he product of reasonable hours times a reasonable rate does not end the inquiry" as it can still adjust the value based on the Section 330 factors. See Hensley, 461 U.S. at 434.
The court is not required to apply the lodestar method, however, especially in cases where the court cannot reasonably quantify the fee award with numerical precision. See Unsecured Creditors' Comm. v. Puget Sound Plywood, Inc. (In re Puget Sound Plywood, Inc.),
924 F.2d 955, 958 (9th Cir. 1991); Kitchen Factors, 143 B.R. at 562; Auto Parts, 211 B.R. at 34. That is not the case here because the Retainer held by Attorney Beck is in a fixed amount. The court finds that, given Attorney Beck's experience, reputation, and ability in bankruptcy matters, $475.00 per hour is a reasonable rate in this district. The court also finds the $20,000 retainer to be reasonable.
Given that Attorney Beck's services were deficient in connection with the initial Plan and with respect to confirmation of workers' compensation insurance, those services provided little or no value to the Debtor. The Billing Statement shows that counsel spent 18.3 hours drafting, revising, and sending emails addressing the Plan. That represents about 27.5 percent of the 66.5 total hours billed. Additionally, the Dismissal Hearing occurred on July 9. Because counsel failed to confirm that his client reinstated workers' compensation insurance before that date, the court will also deduct the hours billed at and after that hearing. The services at the Dismissal Hearing and thereafter provided no value to the Debtor. The Billing Statement also reflects that Attorney Beck billed 2.8 hours from July 9 through July 15. Adding that amount to the 18.3 hours spent directly on the Plan results in a total of 21.1 hours. The 21.1 hours represents about 31.7% of the total hours billed. (Deducting 21.1 hours from the 66.5 total hours billed results in
45.4 hours of services rendered.) Multiplying the 45.4 hours by the rate of $475.00 per hour results in $21,565 of value for the services properly rendered. Because 31.7 percent of Attorney Beck's services for the Plan and worker's compensation provided no value, however, the court will require Attorney Beck to disgorge $6,340.00 from the Retainer.4
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The court could consider the factors under Section 330(a)(3) to determine if there are adjustments to be made to the $6,340 disgorgement amount. Because the court previously addressed all of those factors, however, there is no reason to make additional adjustments. Accordingly, the court will order a disgorgement of $6,340 from Attorney Beck because it reflects the portion of the services that were of no value to the Debtor.
5. Did the professional exercise reasonable billing judgement?
"A finding of compensability merely means the services performed were properly charged as legal services, as opposed to administrative or otherwise nonlegal services." Puget Sound Plywood, Inc., 924 F.2d at 958. This question largely goes to whether the hours described in the Billing Statement were for performing actual legal work that should be compensable at professional rates. See Castorena, 270 B.R. at 516. The Billing Statement shows that Attorney Beck charged only for compensable legal services. Therefore, the court will not order additional disgorgement from the Retainer beyond the $6,340 previously discussed.
CONCLUSION
For the reasons discussed, the court concludes that partial disgorgement is appropriate in this case. The Debtor requested authorization to employ Attorney Beck, and the court granted that request. Counsel performed necessary and beneficial services towards reorganizing the Debtor's affairs, and there was no clear indication that reorganization was impossible. Those services were beneficial at the time rendered even if they do not appear to have been in hindsight. Attorney Beck adequately documented his services as shown by his Billing Statement that allowed the court to know who provided the services, what services were provided, when the services were provided, and how long it took to perform the services. Counsel's hourly rates were reasonable, but not all of the services performed provided value for the Debtor. The court will reduce the $20,000 retainer fee by 31.7% for the services spent on the Plan and for the time billed after the July 9, 2025, dismissal hearing. As to the services for which compensation is approved, all of them were reasonably billed for compensable legal services. Disgorgement of $6,340 from the Retainer is appropriate.
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IT IS THEREFORE ORDERED that the Motion for Disgorgement and Payment of Fees brought by Trustee Jeanette McPherson in the above-referenced Chapter 11 Subchapter V proceeding, Docket No. 85, be, and the same hereby is, GRANTED.
IT IS FURTHER ORDERED that the amount of $6,340.00 shall be disgorged by the Law Offices of Corey B. Beck, P.C., from the funds held on retainer in connection with the above-captioned proceeding. The disgorgement amount shall be remitted to Jeanette McPherson, as Subchapter V trustee, no later than 10 days from the entry of this Order. Copies sent via CM/ECF ELECTRONIC FILING
Copies sent via BNC to:
C.I.I.,INC.
COVER IT WINDOW FASHIONS
COVER-IT WINDOW FASHIONS
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