A recent U.S. Court of Appeals for the Fifth Circuit decision
considered whether a request for compensation submitted by a
chapter 13 debtor's counsel under the standard compensation
scheme set forth in the court's local rules (i.e.,
"no-look" fees) may be reduced on the basis that such
fees are unreasonable for the services provided. The Fifth
Circuit ultimately concluded that standard fee compensation,
whether it is under statutory or local rule, is generally presumed
reasonable and should be awarded in full. Accordingly, the
court held that only in certain limited circumstances should courts
review the reasonableness factors and consider fee awards less than
the proscribed compensation.
Typically, pursuant to § 330 of the Bankruptcy Code and
Federal Rules of Bankruptcy Procedure 2002 and 2016, in order to be
compensated for the services provided during a bankruptcy case,
professionals, including debtor's counsel, must maintain
detailed time records and file comprehensive fee applications,
which are reviewed by the court. To streamline this tedious and
somewhat lengthy process, no-look fees are court-approved flat
fees, which are presumed to be fair and reasonable (unless
a reasoned objection is made), whereby debtor's attorneys may
be compensated for their services without the need for typical
formalities. No-look fees, which vary from jurisdiction to
jurisdiction, are governed by local rules and vary by jurisdiction
and are often limited to chapter 13 consumer cases that typically
involve minimal assets and straightforward (if any) legal
issues.
No-look fees are controversial in that many do not believe that
they provide attorneys incentive to do more than the bare minimum
and that as such, attorneys may receive a windfall for little or no
effort in a case. In a recent case, Sikes v. Crager (In re
Crager),1 the Fifth Circuit affirmed the U.S.
Bankruptcy Court for the Western District of Louisiana's
confirmation of the debtor's chapter 13 plan and award of the
maximum amount permissible under the jurisdiction's no-look fee
rule over the chapter 13 trustee's objection.
Pursuant to the Standing Order Regarding "No-Look"
Fees and Addendums in Chapter 13 Cases (the "standing
order"), which was entered on March 5, 2010, by the bankruptcy
court,"a no-look fee not to exceed $2,800"
applied to chapter 13 cases, for the performance by the
debtor's attorney of a variety of services, which, among other
things, included all services required to prosecute the
debtor's case and excluded, for example, the representation of
the debtor in an adversary proceeding.2 In
Crager, the chapter 13 trustee objected to the no-look fee
on the basis that the matter was "more simplistic and less
complicated" than the average chapter 13 case because, for
instance, the payment plan did not require any payments to secured
creditors and involved only a handful of unsecured
creditors.3 The trustee additionally argued that the
plan should be denied because it was filed in bad faith given the
fact that only the debtor's attorney would receive payment
under the plan for the first 35 out of 36 monthly
installments.4 The bankruptcy court rejected this
argument and approved the plan and awarded the attorney
fees.5
On appeal to the U.S. District Court for the Western District of
Louisiana, the bankruptcy court order approving the plan and
attorney fees was overturned on the basis that the plan was filed
in bad faith because the fee award consumed too much of the
available funds for creditors.6 In reviewing the plan
and the compensation award, the Fifth Circuit reversed the district
court's ruling and ultimately approved the no-look chapter 13
fee, despite the fact that the award resulted in debtor's
counsel receiving nearly all of the amounts to be distributed under
the chapter 13 plan.
The Fifth Circuit reviewed the requirements set forth in the
standing order and noted that the no-look fee was not an
entitlement and that "the Standing Order [did] not supplant
the requirements of 11 U.S.C. § 330."7
As such, the Fifth Circuit rejected the district
court's ruling that the burden was on the objector (in this
case, the trustee) to "prove that the presumptive fee was
unreasonable."8 The Fifth Circuit held instead that
if an objection to a no-look fee is raised, the court is obligated
to review the reasonableness of the award under the circumstances
as required under 11 U.S.C. § 330.
Upon review of the facts in the Crager case, the court
held that the no-look fee was reasonable under the circumstances,
especially given the fact that the trustee objected to the
attorneys' fees in "bad faith" on the basis that the
case was "simplistic." Ironically, the Fifth Circuit held
that the chapter 13 trustee's objection to the requested fees
"transformed the case from a routine [c]hapter 13 matter into
a complicated proceeding." As such, the Fifth Circuit reversed
the district court's ruling and affirmed the bankruptcy
court's confirmation of the $2,800 no-look fee.
In light of the holding in Crager, courts should allow standard compensation in accordance with the local rules in the case of a counsel's no-look fee unless there is a reasoned objection warranting a reduction. In such a case, compensation is presumed reasonable unless there is a reasonable basis for objection. Crager illustrates that this type of fixed compensation can facilitate the expeditious administration of bankruptcy cases. When there is fixed compensation, debtor's counsel receives the same compensation for cases regardless of his or her hourly services, and thus, there is no incentive to spend hours of litigation and negotiation if the matter does not warrant such time expenditure.
Originally published in theABI Ethics Committee Newsletter, January 2013
Footnotes
1. 691 F.3d 671 (5th Cir. 2012).
2. See www.lawb.uscourts.gov/judge/orders/StandingOrderReNoLookFees_Addendums.pdf
3. Crager, 691 F.3d at 677.
4. See Sikes v. Crager (In re Crager), Case No. 10-1863, 2011 WL 4591889, at *3, 4 (W.D. La. Sept. 30, 2011) (noting that many courts have held that chapter 13 plans that only pay attorney fees
5.Id. at *1.
6. Id. at *5 (holding that "the plan, which directs approximately 97 percent of the payments to go to [the debtor's] attorney and the administrative fees and a paltry 3 percent or so to [the debtor's] creditors, is inconsistent with the spirit and purpose of Chapter 13 and is therefore not filed in good faith").
7. Crager, 691 F.3d at 677.
8. Id.
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