A recent decision from the Bankruptcy Court for the Middle District of Florida (In Re Stanton, No. 8:11-BK-22675, 2016 WL 6299750 (Bankr. M.D. Fla. Oct. 26, 2016)) refuses to create a bright-line rule that denies additional compensation once an objection has been filed to a professional’s fee application. The decision in Stanton appears to be in conflict with Baker Botts v. ASARCO, where the United States Supreme Court held that Bankruptcy Code § 330(a) does not authorize attorney’s fees for work performed defending a fee application because that work is not performed for the estate.
In Stanton, attorneys serving as special counsel for a Chapter 7 Trustee pursued fraudulent transfer claims against the Debtor’s ex-wife. The attorneys for the Trustee ultimately settled the claims on the bankruptcy estate’s behalf. Under the settlement, the bankruptcy estate recovered $3.5 million in proceeds from the sale of certain stock, as well as real property in California that eventually sold for nearly $3 million.
The settlement was approved and thereafter the Trustee’s attorneys filed an Application for Compensation (the “First Application”) to which the United States Trustee (“UST”) objected on the basis that 1) the First Application failed to provide any meaningful breakdown on how the attorneys spent the 900 hours in the main bankruptcy case; (2) the First Application failed to describe how labor was divided among attorneys in the fraudulent transfer proceeding or demonstrate that the lawyers did not unnecessarily duplicate services; and (3) the First Application failed to provide any meaningful narrative regarding the results obtained from the Trustee’s attorneys’ services. Even though the First Application met the local rule’s requirements for a Chapter 7 application, the UST insisted on the level of detail required for a fee application in a chapter 11 case.
Based on the UST’s objection to the First Application the Trustee’s attorneys opted to supplement the First Application. To do so, an 18 page supplement that addressed the issues raised by the UST in its objection to the Application was prepared and filed. At a hearing on the First Application, the UST conceded that the supplement to the First Application resolved the information issues raised by the objection that was filed to the First Application. Based on such concessions, the Court approved an interim distribution on the First Application.
A second Application for Compensation was filed (the “Second Application”) seeking compensation, in large part, for the time spent in supplementing the First Application. Naturally, the UST objected to the Second Application on the basis that under the Baker Botts decision a bright line rule had been created that spent in defending a fee application was unrecoverable under § 330(a).
The Bankruptcy Court for the Middle District of Florida found that the UST’s interpretation of Baker Botts was too broad and that the supplement to the First Application was time spent in preparing the fee application and allowed “the trustee to understand the fees incurred” which constituted “services rendered to the bankruptcy estate” and therefore provided a benefit to the estate.
In summary, the Court’s conclusion that “the touchstone, then, for determining whether fees are recoverable under Baker Botts is not when the fees were incurred (i.e., before or after an objection) but rather whether they were incurred in service to the estate”, appears to soften or clarify the holding of the Baker Botts decision just a bit and refuses to adopt a bright-line rule that once an objection has been filed an attorney can no longer recover any fees related to an application for compensation.