The Chasm Between Judges & Bankruptcy Attorneys Over Fees

attorneys fees in Chapter 13

Why is there such a gap between consumer attorneys and bankruptcy judges over attorneys fees?

It sometimes feels like the bench believes that every dollar a debtor’s lawyer gets is of questionable legitimacy.  Yet the same judges roll their eyes, at least figuratively, at the competence and preparation of those same lawyers.

Think there might be a connection?

Here’s my take, after 37 years of trying to get paid a fair fee.

Source of the problem

Very few bankruptcy judges ever represented average individuals in bankruptcy before they became judges.

Fewer were sole practitioners,who must rely on the fees they earn and collect to stay in business.

Those two factors seem to create the chasm between bench and bar over attorneys fees in consumer bankruptcy cases.

This post starts from the experiences of  a colleague who sought approval for fees toward the end of a Chapter 13 case.  That fee application resulted in a written opinion denying in part the request for fees over and above the flat fee or “no look” fee available in this district.

Some assumptions underlying the written opinion are ill considered; having been written down, the view of the judge writing  may attract a following beyond the facts of the case in question and beyond the realities that consumer bankruptcy lawyers face.

So, here’s my perspective on the opinion, from the attorney’s fees side of the gulf between bench and bar.

The fee is “too high”

In reducing the fees requested, the judge writes that the fee is “too high”, because  the work was “the ordinary sort of counseling associated with any chapter 13 filing”.

So?

The unstated assumption is that whatever counseling is required is subsumed in the no-look fee. Or that “ordinary” has no value.

It may be “ordinary”, but it’s still part of what an attorney owes her client and necessary to maintain a good working relationship with the debtor.  Particularly, when the communication is initiated by the debtor and it’s the debtor who will pay the fees as approved, what’s the attorney to do?

Let’s face it:  clients are not the same.  They have different levels of basic knowledge; different problems from case to case; and different “stuff” happening in their lives.

Some clients are needy, illogical, insecure, and forgetful.  Some have situations more complicated  than others.  Families, jobs, and health get in the way of a smooth and efficient case.

Are those clients not entitled to effective representation?

If the court gets to exercise hind sight on the necessity of the counseling, without having met or interacted with the client, the attorney is left with unpalatable choices.

  • Ration counseling and responsiveness to the debtor
  • Represent only rational, organized, educated, and unstressed debtors
  • Render the necessary service at the attorney’s expense

None are appealing alternatives from my point of view.  I strive to provide good service and make a modest living.  Those choices conflict with my goals for my practice.

Services are “administrative”

The second basis the court used for denying a part of the request was an assessment that many of the services for which the attorney billed the minimum increment of one tenth of an hour were “momentary” or “administrative.”

Those deprecated services included review of claims filed, communication received, or “other administrative tasks.”  My view is different.

None of those listed and discounted services are ones that can be delegated to staff.  How is an attorney to manage the case and know when issues arise if she doesn’t review claims filed, read the emails received, or examine a notice of mortgage payment change?

It’s not clear if the court contends that those tasks don’t have to be done, can be delegated to others, or are simply non-compensable.

I’m reminded of the apocryphal response of Michelangelo to the question of how he turned a slab of stone into his masterpiece of David:

It is easy. You just chip away the stone that doesn’t look like David.

Yeah.

Applied to lawyering, some part of the representation of debtors involves identifying the facts that don’t drive the case.

  • Reviewing the notice of mortgage payment change, so you know whether the servicer is accurate or overreaching.
  • Reading the correspondence that comes in so you know how others see the situation.
  • Analyzing a claim is see if it’s sufficiently supported, within the statute of limitations, and consistent with the debtor’s representations.

You look at the paper, and decide whether it’s part of your case, or can be chipped away like excess stone.

If the court really contends that isn’t necessary to good representation, I’m open to some continuing education on how it’s to be done.

Much of this problem lies in the seductive qualities of the no-look fee.

How the “no look” fee works

The no look fee adopted in the Northern District of California fixes a maximum fee for Chapter 13 representation that an attorney may charge without making a formal written application to the court for review and approval of fees.  The Rights and Responsibilities agreement provides that an attorney may apply for additional fees if the amount of the “no look” fee doesn’t fairly compensate the attorney for the services rendered.

The “no look” fee appeals to the court, because the bench is relieved of reviewing routine applications for compensation;  it appeal to attorneys because it is quick, simple, and relieves the debtor of paying for the cost of preparing a fee application.  Generally, the lower the transactions costs to the debtor, the more likely the debtor is to successfully complete the plan.

The difficulty arises when the case takes more time and effort than the no look fee covers. The Rights and Responsibilities require that any application for additional fees establish ” that said fees and costs are merited and have not been compensated within the amounts previously ordered.”

An attorney can opt out of the no-look fee regime and seek approval of fees in the same manner as in Chapter 11 cases (where the debtor’s budget is invariably much larger than that of an individual debtor).  Not only does opting out add to the fees the debtor must pay, but it pretty much assures that no compensation is paid to debtor’s counsel between the filing of the case and months after the plan is confirmed.  (One can never be too skinny, says the old saw. Opting out of the no look fees and waiting even longer for payment makes it easier to eat less.)

No look fees require a crystal ball

The fundamental, but fallacious,  premise of the no look fee is that the attorney can accurately assess the qualities of the client and the course of the case at the first meeting with the client.  If the attorney is to opt out of the no look fees, and seek compensation through the traditional fee application, that choice must be made at the outset of the representation.

Thirty seven years of doing this, and I can’t tell which clients will be responsive, collected, and cooperative over the five years of a Chapter 13.  I can’t tell whether there will be objections to confirmation, interruptions of income, changed circumstances, or adversaries to be defended.  How can I tell up front how much “ordinary counseling” will be required?

Periodic billing in a payment-free world

The judge writing about the case that triggered this post raised a couple of issues not presented in the application for fees or at the hearing on the application.  One was using periodic statements to the client as a means of communicating with the client about the services being rendered that aren’t immediately visible to the client.

The Rights and Responsibilities statement contains a provision that absent court order, attorneys fees are to be paid through the plan.  So sending a periodic bill to the client is only a means of communication, since the client is not to pay the statement.

I agree:  that sounds good in theory.  But I’ve tried this, in an attempt to provide clients with visibility into the state of their account.

It was a nightmare.

Two things emerged.  One, no matter that the cover letter that we sent out with the statement said “this is for information only”, a fair number of recipients sent money.  Or called to say they couldn’t send money.  Or raged that they wouldn’t send money.

They entirely missed the point that the statement was for information only.

As an experiment in client communication, it failed horribly.

The second defect in the process involved the fact that the time entries were unedited.

When we review time records in preparation of a fee application,

  • we edit the time entries for clarity of description and for whether the time spent was properly billable.
  • We zero out some charges;
  • we discount bills as a whole if it seems there is a disconnect between the time spent and the result achieved.

But we don’t invest that time until we’ve decided to file a fee application.

So the client was seeing what was a rough draft of a bill.  It wasn’t our proposed bill.  So it ended up confusing and upsetting some clients.

The only communication it seemed to effect was the confused or combative phone calls about the statement.

We stopped doing it.

Apply for fees early and often

The court’s second point raised sua sponte went to the timing of the fee application toward the end of the case.

Setting aside the issue of the impact of the fees sought on the duration and feasibility of the plan, the admonition to counsel to file fee applications “earlier and with more frequency” runs counter to a local, judge-made rule about fee applications.

The judges’ guidelines for compensating attorneys for the cost of preparing a fee application imposes a cap on that cost at 5% of the amount sought.  That may work well in a Chapter 11 where the fees are in the tens of thousands of dollars;  it is artificial and ill suited to modest Chapter 13 cases.

The application we are discussing sought $6275 in fees.  Five percent of that sum is $314.  That is seldom enough to cover the real cost of  preparing the application, which requires drafting a narrative, slicing and dicing the fees involved between different professionals and different matters, and providing notice to creditors and the client.

Imagine that counsel had sought those same fees in two applications:  the guideline for the preparation of the application would allow $157 for each application.  The client would incur the cost of the attorney’s appearance at two hearing rather than one.

Until that cap on the cost of preparing a fee application is made consistent with the real world of consumer practice, following the court’s admonition to apply early and often would increase the uncompensated time that debtor’s counsel commits to a case.

Time for story-telling

That’s the view from this side of the gap about attorneys fees and the bankruptcy regimen for getting paid.

Poor story telling may be responsible for the outcome in the case in question.  To the extent that’s the case, the applicant is challenged to put more flesh on the bones of the time records.

Personally, I relish writing the narrative in a fee application, because it’s often the only chance I get to tell judges what it’s like, behind the scenes, in a consumer bankruptcy practice.  I see this as an educational opportunity, running from bar to bench, rather than vice versa.

But we need to be mindful that an attorney owes the client a duty of loyalty.  Too often, if I were to be utterly candid in my narrative of the case, I’d write that the client is ill-organized, unsophisticated or worse, pig headed, afraid, or distracted.

That all may be true, but getting paid fairly shouldn’t require attorneys to belittle or judge our clients in the process.

That’s my story and I’m sticking to it.

This post first appeared on BankruptcySoapbox.com.