The bankruptcy court did not abuse its discretion in reducing the chapter 7 bankruptcy attorney’s fees in two cases in which the attorney charged an additional $500 to clients due solely to their electing to pay his fees post-petition rather than up front. Ridings v. Cassamatta (In re Allen), No. 20-6023 (B.A.P. 8th Cir. June 21, 2021).
At issue in this case was Bankruptcy Attorney William Riding’s payment policy under which he offered two options for his chapter 7 clients. Under the first option, the debtor pays $1,500 prior to filing the petition. That amount comprises a $335 filing fee plus attorney fees of $1,165. Under the second option, the debtor pays nothing up front but pays $2,000 post-petition. That amount comprises the filing fee plus $1,665 in attorney fees. The services Mr. Ridings provided were the same regardless of whether the client paid up front or post-petition.
In this instance, debtor, Allen, paid nothing up front, and debtor, Donegan, paid $600 up front. Both opted for the post-petition fee agreement under which they agreed to pay in monthly installments all or the remaining fee over the course of one year. The trustee challenged Mr. Ridings’ fees under the late payment plan, arguing that they exceeded the value of the services the clients received. After a hearing, the bankruptcy court found the attorney fees in the amount of $1,165 were reasonable and ordered Mr. Ridings to return any fees over that amount to the clients.
On appeal, the Bankruptcy Appellate Panel for the Eighth Circuit noted that bifurcated payment plans such as the one in this case, are intended to make it possible for impoverished clients to obtain legal services that they could not otherwise afford. In exchange, the attorney benefits from treatment of his fees as “a postpetition, nondischargeable debt that can be collected from the client without violating either the automatic stay or the discharge injunction.” In the face of a challenge to the fees, the attorney has the burden of proving his fees reasonable. Section 329(b) provides authority for a bankruptcy court to cancel a fee agreement between bankruptcy counsel and his client when the court finds the fees to be unreasonable. Bankruptcy Rule 2017 requires that the court give counsel notice and a hearing before reducing his fees.
Here, Mr. Ridings provided “prepetition counseling, filed the petition, filed the statement of financial affairs, filed all documents required by § 521 of the Bankruptcy Code, and attended two § 341 hearings.” As to the continued 341 hearings, Mr. Ridings testified that under the pre-petition payment plan, he would not have charged more than the $1,165 base amount for attending the continued meeting. The panel found that the actual services provided by Mr. Ridings were exactly the same as those he would have provided for $500 less had the clients paid up front.
The panel rejected Mr. Ridings’ argument that it should apply a lodestar analysis to his fees, finding that a lodestar method of fee calculation was not required where the services provided were “normal and customary.” As a practical matter, the panel found that it had insufficient information to apply a lodestar analysis as Mr. Ridings testified that he charges the same amount in all chapter 7 cases and does not charge by the hour or keep time records.
The panel concluded that the bankruptcy court did not abuse its discretion in reducing Mr. Ridings’ fees in the two cases before it.
Tags: Attorney Fees
