Appeal from the United States Bankruptcy Court for the District of Arizona Honorable James M. Marlar, Chief Bankruptcy Judge, Presiding Bk. No. 09-28626
Argued and Submitted on February 24, 2012 at Phoenix, Arizona
Before: PAPPAS, DUNN and JURY, Bankruptcy Judges.
Gibson, Nakamura & Green ("GNG"), the law firm that represents chapter 7*fn2 debtor IMG Transport, L.L.C. ("Debtor"), appeals the bankruptcy court's order requiring it to disgorge $8,794.62 in fees it received to appellee Lawrence Warfield, the trustee in Debtor's bankruptcy case ("Trustee"). We AFFIRM.
Debtor was a Yuma trucking company. GNG, a Tucson law firm, was retained by Debtor on November 5, 2009, to represent the company in a case under chapter 7 of the Bankruptcy Code. For its services, Debtor agreed to pay GNG a flat fee of $12,000, plus expenses. Acting through GNG partner Scott D. Gibson ("Gibson"), Debtor's petition was filed on November 6, 2009. On November 23, 2009, GNG filed a Rule 2016(b) Disclosure of Compensation of Attorney for Debtor, stating that it had received $12,000 from Debtor prior to the filing of the bankruptcy case to represent Debtor.
Trustee was appointed to serve as chapter 7 trustee. On December 4, 2009, Debtor's schedules and Statement of Financial Affairs ("SOFA") were filed. The schedules disclose that Debtor owned only four assets and that it had no secured creditors and seven unsecured creditors, only one of which was listed as disputed. Debtor's responses to the relevant questions on the SOFA were brief and unremarkable. The § 341 meeting of creditors took place in Yuma on December 16, 2009. Gibson appeared representing Debtor at the meeting.
2 The bankruptcy case was otherwise uneventful until May 31, 3 2011, when Trustee filed a Motion to Compel Turnover (the 4 "Turnover Motion"). In it, Trustee requested that the bankruptcy 5 court review the $12,000 fee paid by Debtor to GNG under 6 § 329(b). Trustee argued that, under the circumstances, the 7 $12,000 flat fee paid to GNG was "patently unreasonable," and 8 that a fee of $3,000 was reasonable for an experienced bankruptcy 9 lawyer to represent a chapter 7 corporate debtor in an 10 uncomplicated case with few assets and creditors. To support his 11 view that the amount paid to GNG was excessive, Trustee cited 12 nine corporate chapter 7 cases filed in the Yuma division of the 13 Arizona bankruptcy court in the same year as the IMG case, in 14 which the attorney's fees ranged from $1,500 to $4,000. Trustee 15 therefore sought an order requiring that $9,000 of GNG's $12,000 16 fee be disgorged and paid over to Trustee.
17 GNG filed a response to the Turnover Motion on June 16, 18 2011. In it, GNG noted that Debtor had retained GNG pursuant to 19 a nonrefundable flat fee agreement. In setting the amount of the 20 fee in this case, GNG had been particularly concerned about the 21 risks associated with representing a client that had just lost in 22 "extremely extensive litigation for a personal injury matter"; 23 that the client's principal did not speak English; that there 24 would be significant costs for GNG lawyers to travel between 25 Tucson and Yuma; and that there was the potential for other 26 proceedings that might arise in the case. GNG argued that 27 Arizona state case law supported the reasonableness of a flat fee 28 arrangement even where, after the fact, the payment to counsel 1 exceeded usual billing rates. Attached to GNG's response was a 2 copy of the retainer letter and a statement detailing the time 3 and services provided by GNG to Debtor. 4 Trustee filed a reply on June 21, 2011, contending that 5 while Debtor had the right to engage its choice of attorney, it 6 could not do so at unreasonable cost to the bankruptcy estate. 7 Trustee challenged several of the entries in the GNG fee 8 statement. For example, Trustee pointed out that GNG's statement 9 allocated 10.5 hours at Gibson's $395 partner billing rate for 10 his preparation and travel to attend the fifteen-minute § 341 11 meeting in Yuma. Trustee questioned why a local attorney could 12 not have been engaged to appear at the meeting for considerably 13 less than $4,147.50. Trustee's other criticisms of GNG's billing 14 statement included its twice billing for paralegal time to make 15 photocopies and billing 2.5 hours of Gibson's time for preparing 16 a simple, three-page bankruptcy petition.
17 The bankruptcy court held a hearing on Trustee's motion on 18 June 24, 2011. After the parties made substantially the same 19 arguments as those in the motion, response and reply, the court 20 took the issues under advisement to, in its words, review the 21 pleadings and the fee statement with a "fine tooth comb." 22 The bankruptcy court entered an order disposing of the 23 Turnover Motion on July 19, 2011 (the "Disgorgement Order"). In 24 the Disgorgement Order, the court found that: (1) Debtor's 25 schedules listed only five non-insider creditors, very little 26 tangible personal property, and no real property; (2) Debtor was 27 required to respond to few of the twenty-five questions in the 28 form Statement of Financial Affairs; (3) other than the pleadings 1 regarding the Turnover Motion, the petition, and some minor 2 matters, "little else of substance performed by the Debtor's 3 attorneys appears in the file." The bankruptcy court determined 4 that $3,000 was a reasonable fee for the work done by GNG. After 5 also allowing GNG's costs, the balance of the $12,000 retainer, 6 $8,794.62, was ordered disgorged by GNG to Trustee. 7 Debtor filed a timely appeal on July 20, 2011.
9 The bankruptcy court had jurisdiction under 28 U.S.C. 10 § 1334(b) and § 157(b)(2)(A). We have jurisdiction under 28 11 U.S.C. § 158. 12 ISSUE 13 Whether the bankruptcy court abused its ...