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#2287 signed 12-19-96

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

In re:

LYLE D. KEE,

DEBTOR(S).





CASE NO. 90-40292-7

CHAPTER 7





ORDER ON ATTORNEY FEES

This matter is before the Court on the first and second applications for fees and expenses for John H. Stauffer, Jr., and his law firm, Goodell, Stratton, Edmonds & Palmer, counsel for the debtor. Objections have been filed by the case trustee, the United States Trustee, the United States on behalf of the Internal Revenue Service (hereafter the IRS), and by creditors Joseph A. Ida, Jo Ann Ida, Matthew Ida, and Billie Ann Parker (the Ida creditors). Mr. Stauffer has submitted additional materials in support of the applications, and the case trustee, the U.S. Trustee, and the IRS have supplemented their objections. The Court has reviewed the relevant pleadings and is now ready to rule.

On February 9, 1990, a $15,000 retainer was paid to Mr. Stauffer's law firm, perhaps by Lyle Kee, although this is not definitely established by the materials submitted. Four days later, both Lyle and his father Eldon Kee filed for bankruptcy. Mr. Stauffer and his firm represented both the Kees at that time, and he filed a disclosure in each bankruptcy case stating that the firm had been paid the retainer to represent both Kees "in the filing of these proceedings." By October 1990, an actual conflict of interest had developed which forced the firm to withdraw from representing Eldon Kee but, with both clients' consent, it continued to represent Lyle.

Sometime earlier, the Kees had been sued in state court and were found liable to the Ida creditors for actual and punitive damages of over $1 million based on fraud in the sale of securities. They appealed and sometime after they filed for bankruptcy, the appeal was decided against them. The law firm performed services relating to both bankruptcy cases and the state court appeal, and applied the retainer to work on all these matters. Now it asks to have the balance of its fees paid out of Lyle Kee's bankruptcy estate.

The Court's review has been hampered by inconsistencies in the documentation the law firm has supplied. The fee application was filed in two parts. The second one seems accurate enough. The first, though, said it covered September 23, 1991, though March 16, 1995, but the time entries begin on February 13, 1990, and include $1,490 worth of time spent before September 23, 1991. These early entries include none between February 27 and December 11, 1990. However, the supplemental materials Mr. Stauffer supplied do include time entries for this period, along with a few earlier ones from February 2 to February 12, 1990. Some of this additional time was spent on matters for Lyle Kee and some on matters for Eldon. At least $3,608.34 in fees and expenses for Lyle were charged against the retainer for these periods. Another charge against the retainer, for $7,439.52, is documented by a bill directed to Eldon, but appears to cover work done on the state court case the Ida creditors had filed against both Lyle and Eldon. Thus, it seems clear that Mr. Stauffer and his firm charged Lyle Kee somewhat more than the amount included in the fee applications. At least $1,093.99 in charges that were included in the applications were charged against the retainer. It appears that the supplemental materials do achieve their main purpose, that is, to document the application of the $15,000 retainer the law firm received. Nevertheless, the Court would admonish the firm to strive for greater clarity and consistency in any future applications it may file.

The objections have raised several issues. The case trustee and the United States Trustee point out that some of the time entries do not contain sufficient information to inform the parties what services were provided. All the objectors suggest that many of the entries concern services which did not benefit the bankruptcy estate but only the debtor personally. These include the services dealing with the state court case, a dischargeability complaint, and some tax matters. The case trustee asserts many of the expense items claimed are not extraordinary but simply a part of office overhead. The United States Trustee suggests two items should be disallowed because they are for attempted telephone calls to the client which failed to reach him. According to the IRS, some of the services are duplicative, and some involved preparation of the fee application. The IRS also complains that the application seeks payment of an accountant's fees at an excessive rate for an excessive amount of time. The Ida creditors object that Mr. Stauffer and his firm contested the nondischargeability of their judgment despite having no basis to do so. After Mr. Stauffer supplemented the firm's application, the IRS, the U.S. Trustee, and the case trustee all asserted that since Lyle Kee apparently paid the retainer, it must be applied only to the fees for representing him in his bankruptcy and not to the fees for the state court case or for his father's bankruptcy.

The Court will first address the concern that many of the services provided did not benefit the bankruptcy estate. Even before §330(a) was amended in 1994, the Tenth Circuit had held the provision permitted a debtor's attorney to be compensated only for services that benefitted the bankruptcy estate. Rubner & Kutner v. U.S. Trustee (In re Lederman Enterprises), 997 F.2d 1321, 1323 (10th Cir. 1993) (chapter 11 case). In a chapter 7 bankruptcy case, the fees of an attorney representing the debtor can usually be allowed as administrative expenses only to the extent they promote the administration of the case and help the debtor perform his duties. See In re Waxman, 148 B.R. 178, 181-83 (Bankr.E.D.N.Y. 1992); cf. Pfeiffer v. Couch (In re Xebec), 147 B.R. 518, 523-24 (9th Cir. B.A.P. 1992) (after appointment of chapter 11 trustee, debtor's counsel may be compensated from estate so long as services benefitted estate, usually by complying with the debtor's duties under §521). The only services the law firm provided which benefitted the estate were those needed to educate the debtor about bankruptcy and his filing options, and to help him complete his schedules and perform his other duties under §521. While similar services were provided to the debtor's father, they would have benefitted Eldon's bankruptcy estate, not Lyle's, and so could not be paid for from Lyle's estate. This is not to say the debtor did not want or need the services provided, merely that services provided for the debtor's personal benefit must be paid for by the debtor, not his bankruptcy estate.

Having reviewed the applications and supplemental materials, the Court finds that most of the time charged was spent appealing the state court judgment against both Kees, defending Lyle against the dischargeability complaint filed by the Ida creditors, and contesting Lyle's tax liabilities. These activities were pursued to benefit the debtor personally, not his bankruptcy estate. The Court finds that only $1,271 of the fees were the type that promoted the administration of Lyle Kee's bankruptcy estate and could be compensated under §330(a) and §503(b)(2). Of this amount, $801 was incurred early enough that it was charged against the retainer, but the remaining $470 was not. Another 5.7 hours were spent between February 28 and December 1, 1990, on the administration of Lyle Kee's bankruptcy estate, but the materials submitted do not enable the Court to determine who performed this work or what the charge for the time was; in any event, these fees were charged against the retainer and so could not be recovered from the estate.

Given Mr. Stauffer's representation that the retainer was paid to his law firm for representing the Kees in their bankruptcy proceedings, the Court believes the retainer must be applied to fees incurred in connection with those proceedings. However, while Lyle Kee still had an interest in the retainer--assuming he indeed supplied all the money paid as the retainer--so long as it remained in the law firm's trust account, the money secured the firm's fees for services it performed which satisfied the conditions the debtor apparently imposed when he paid the money, namely, that the services be provided to the debtor or his father in connection with their bankruptcy cases. No one has sought turnover of the payment to the law firm under §542(a) or sought to avoid the transfer under the avoiding powers contained in §§544, 547, or 548, or attacked it under Bankruptcy Rule 2017(a). Consequently, the Court believes the retainer could properly be applied to any services Lyle Kee wanted which were connected with his and his father's bankruptcy cases. The state court appeal, Lyle's defense of the dischargeability complaint and contest of his tax liability, and the fees for representing Eldon in his bankruptcy case were all connected with resolving the Kees' debts and so were sufficiently connected with their bankruptcy filings to fall within the purpose for which the retainer was paid. These fees could properly be charged against the retainer and total $14,760. The materials submitted also indicate the chapter 7 filing fees for both bankruptcy cases, a total of $240, were paid out of the retainer; this is an appropriate charge against the retainer as well. Since $470 of the fees which are compensable under §330(a) and §503(b)(2) were incurred after the retainer was exhausted, the firm is entitled to an administrative expense claim of $470 against Lyle's bankruptcy estate.

The Court notes that the largest bill charged against the retainer, $7,439.52, is documented by a December 10, 1990, bill directed to Eldon Kee. However, it is further identified as "Ida v. Kee" and concerns services provided in the state court appeal of the Ida creditors' judgment against both Lyle and Eldon. It seems relatively clear these services were provided to both Kees, not just Eldon, as the bill might otherwise seem to imply.

At this point, having found the firm is entitled to be paid only $470 from Lyle Kee's bankruptcy estate, the Court assumes the case trustee, the IRS, and the Ida creditors have no interest in the balance of the fee applications and so will overrule the rest of their objections. The Court will also not address de minimus objections. It is nevertheless appropriate for the Court to review the remaining fees for reasonableness under §329. The Court agrees with the United States Trustee that fees are not allowable as an administrative expense if the attorney fails to disclose the topic, purpose, or subject matter of the work performed, as these applications frequently do. However, when the fees will not be paid from the bankruptcy estate but instead are reviewable only for reasonableness under §329, the Court need not insist on the detailed documentation required for administrative expenses. Here, the Court notes that most of the work involved contesting: (1) the Ida creditors' million-dollar judgment, (2) the dischargeability of that judgment, and (3) the IRS's claim which was allowed for over $200,000, most of it as a priority claim. The materials submitted do not enable the Court to determine exactly how much the law firm has charged the debtor, but the Court can tell the fees do not total more than the $30,932.39 sought in the applications, plus the $3,608.34 billed to Lyle and charged against the retainer but not included in the applications, plus Lyle's share, if any, of the $7,439.52 billed to Eldon and charged against the retainer for services related to the state court appeal. Under these circumstances, the Court does not find overall fees of around $40,000 to be unreasonable. Mr. Stauffer and his firm are free to try to collect from Lyle Kee the remaining balance owed for their fees and expenses.

The Court would finally note that if his fees could otherwise be paid out of Lyle Kee's bankruptcy estate, the accountant who did work related to the IRS's claim against Lyle would have to file a separate application for his fees rather than have them included as an expense in the law firm's fee application. However, since those fees, like most of the law firm's fees, will not be paid out of the estate, no such application is required.

For these reasons, Mr. Stauffer and his law firm are hereby allowed fees of $470 as an administrative expense of Lyle Kee's bankruptcy estate. The balance of their fees and expenses are approved as reasonable under §329, but are not allowable as an expense of the estate.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of December, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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