Market Center East Retail Property, Inc. (Market Center) is appealing a decision from the Bankruptcy Appellate Panel (BAP) which upheld a bankruptcy court's award of $350,752.06 in attorney's fees to Barak Lurie and his firm, Lurie & Park, for legal services rendered in a failed sale of a retail shopping center to Lowe’s Home Center. Market Center contends that the bankruptcy court improperly calculated the fees, arguing it should have applied the lodestar method and adhered strictly to the factors outlined in 11 U.S.C. § 330(a)(3), which they assert are exhaustive. They also claim that Congress intended for Section 330(a) to align with established federal fee-shifting case law.
Despite differing with Market Center on some points, the appellate panel has reversed and remanded the case for further proceedings. The background details reveal that Market Center, which owned a shopping center in Albuquerque, contracted to sell the property to Lowe’s for $13.5 million. However, Lowe's withdrew from the agreement in December 2008, citing economic concerns. After discussions between Danny Lahave, Market Center's president, and attorney Barak Lurie, a retainer agreement was established in February 2009, wherein Lurie would charge $200 per hour plus a 15% contingency fee on any recovery. Lurie subsequently filed a lawsuit against Lowe’s for breach of contract and other claims, and shortly thereafter, Market Center filed for Chapter 11 bankruptcy.
Market Center and Lahave knowingly misled Lurie by not disclosing the impending bankruptcy petition. On June 10, 2009, Market Center applied to the bankruptcy court to employ Lurie for ongoing litigation against Lowe’s, referencing their prior fee arrangement. Although objections from Orix Capital Market and the United States Trustee were resolved, Market Center failed to submit a proposed order for Lurie’s employment, and the court did not approve a pre-employment contract under 11 U.S.C. § 328. On November 6, 2009, the court authorized Market Center to sell the shopping center to Lowe’s for $9.75 million, benefiting creditors and providing a surplus to Market Center. Lurie documented 43.75 hours of work, but after the sale, Market Center attempted to withdraw its employment application, which Lurie contested.
In January 2010, a Stipulated Employment Order was approved, entitling Lurie to an administrative claim for services from June 10, 2009. Disputes arose over Lurie’s compensation, specifically for the period prior to his formal employment application. Lurie sought over $1.47 million based on a 15% contingency fee from the sale price and additional fees, while Market Center contended Lurie should only receive $17,500 for 70 hours of work. The bankruptcy court found the withdrawal of Lurie’s employment application to be in bad faith. On March 30, 2011, the court awarded Lurie $350,752.06, calculated under 11 U.S.C. § 330, based on a percentage of the sale price difference and hourly fees for his services.
Lurie was awarded a fee of $8,637.25 per hour by the bankruptcy court, significantly exceeding his standard hourly rate of $400, despite spending about forty hours on the Market Center case without engaging in typical litigation activities such as motions or depositions. The court noted that Lurie’s strategic approach, which involved filing a complaint and pressuring Lowe’s for discovery, effectively led to a settlement and avoided liquidated damages for the estate. The bankruptcy court indicated that the lodestar methodology for attorney fees is not the only acceptable method and questioned its necessity as a default calculation. It evaluated Lurie's fee based on factors from 11 U.S.C. § 330(a)(3) and the Johnson v. Georgia Highway Express, Inc. case. Market Center appealed the fee award, while Lurie maintained that the award was within the bankruptcy court's discretion. The Bankruptcy Appellate Panel (BAP) upheld the bankruptcy court’s fee calculation, stating that § 330 permits consideration of factors beyond hours worked and hourly rates. The BAP clarified that the list of factors in § 330(a)(3) is not exhaustive and emphasized that the comparison of fee awards under different statutes is inappropriate. It dismissed Market Center's argument against the appropriateness of a contingent fee based on § 330, asserting that the statutes should be considered cumulatively. The BAP also rejected claims that the fee award constituted an impermissible enhancement, concluding it reflected the reasonable value of Lurie’s services given the associated risks.
Market Center raises three appellate issues regarding the bankruptcy court's and the BAP's interpretation of 11 U.S.C. § 330. First, it questions whether allowing the bankruptcy court to award contingent fees, rather than relying on the lodestar method, aligns with the statute's language and intent as well as relevant case law. Second, it challenges the conclusion that the factors outlined in 11 U.S.C. § 330(a)(3) for determining reasonable attorney's fees are a non-exclusive list, granting the bankruptcy court discretion to consider or omit them. Third, it examines whether Congress intended § 330(a)(3) to be interpreted consistently with case law pertaining to “reasonable attorney’s fees” under federal fee-shifting statutes, such as 42 U.S.C. § 1988.
The standard of review for appeals from the BAP entails independent examination of the bankruptcy court's decisions, with legal determinations assessed de novo and factual findings reviewed for clear error. A factual finding is deemed clearly erroneous if unsupported by the record or if a significant mistake is evident after comprehensive review of the evidence.
Under 11 U.S.C. § 330(a)(1), reasonable professional fees may be awarded in bankruptcy cases for services rendered by professionals employed under § 327 or § 1103, following notice and a hearing. Notably, attorneys not engaged per § 327 are ineligible for compensation, and any retainer agreements conflicting with § 330 are considered void. Additionally, 11 U.S.C. § 328(a) allows for the award of professional fees based on reasonable employment terms, including contingent fees, but the court retains authority to adjust compensation post-employment if the initial terms prove imprudent due to unforeseen developments.
§ 328 applies when a court has approved a specific compensation, allowing for modifications only due to unforeseen developments, as clarified in In re Pilgrim’s Pride Corp. If no prior approval exists, as in the case of Lurie's compensation, § 328 does not apply. Instead, § 330(a)(3) governs reasonable compensation for services rendered, outlining several factors for consideration: the nature and value of services; time spent; rates charged; necessity for case administration; timeliness relative to complexity; the professional's qualifications; and the customary compensation in similar cases. In this circuit, the adjusted lodestar approach is utilized to compute reasonable attorney fees, factoring in both § 330(a)(3) criteria and additional relevant factors. The Johnson case's twelve factors for attorney's fee awards under Title VII have also been applied to bankruptcy cases since In re Permian Anchor Services, Inc.
The case must be remanded for a hearing to determine attorneys’ fees using the standards from *Johnson v. Georgia Highway Express, Inc.* and the factors outlined in § 330 of the Bankruptcy Code. This circuit evaluates reasonable attorney’s fees by considering both the Johnson factors and § 330(a) factors, as established in cases such as *In re Commercial Fin. Servs.* and *In re Miniscribe Corp.* The twelve Johnson factors for assessing reasonableness include: (1) time and labor required; (2) novelty and difficulty of the questions; (3) requisite skill; (4) preclusion of other employment; (5) customary fee; (6) fee type (fixed or contingent); (7) time limitations; (8) amount involved and results obtained; (9) attorneys’ experience and reputation; (10) undesirability of the case; (11) nature and length of the attorney-client relationship; and (12) awards in similar cases.
The limitations from *Perdue v. Kenny A. ex rel. Winn* regarding adjustments to the lodestar amount do not apply to § 330. The court emphasizes that *Perdue*, which pertains to civil rights litigation under 42 U.S.C. § 1988, has a different context than bankruptcy cases. The Supreme Court’s established rules for federal fee-shifting decisions indicate that reasonable fees should attract capable attorneys for meritorious cases, with the lodestar method typically being sufficient. Enhancements to fees are permitted only in rare circumstances, with the burden of proof lying on the fee applicant to justify such enhancements with specific evidence.
Market Center argues that the court should limit adjustments to the lodestar amount based on the Supreme Court's decision in Perdue, which outlines three specific circumstances for fee enhancement: (1) when the lodestar hourly rate does not reflect the attorney’s true market value; (2) if there are extraordinary expenses and the litigation is particularly lengthy; and (3) when there is significant delay in fee payment. The Court emphasized that such enhancements are rare and require strong evidence that the lodestar fee would be inadequate to attract competent counsel.
Market Center does not seek to overturn existing precedents that incorporate the adjusted lodestar approach, which considers the twelve Johnson factors alongside those in § 330(a)(3). However, applying Perdue’s restrictions to § 330 would effectively limit the factors considered for fee awards. Perdue's rationale pertains mainly to civil rights and fee-shifting contexts, which differ from bankruptcy situations. Unlike the § 1988 fees discussed in Perdue, bankruptcy fees are not typically funded by taxpayers, and § 330 does not rely on a prevailing party concept for fee determination.
Additionally, while Perdue underscores the lodestar method's significance in fee-shifting jurisprudence, it critiques the Johnson approach for lacking guidance. The Supreme Court commended the lodestar method for its objectivity, which reduces judicial discretion and allows for more predictable outcomes, contrasting it with the less structured Johnson factors. In summary, the principles established in Perdue regarding fee enhancements are not applicable in the bankruptcy context governed by § 330, which provides specific criteria for determining reasonable attorney’s fees.
Under 11 U.S.C. § 330(a)(1), bankruptcy courts possess broad discretion in awarding reasonable compensation to attorneys and professionals. The adjusted lodestar approach incorporates both the Johnson factors and the § 330(a)(3) factors, allowing for enhancements or reductions based on these considerations. Market Center argued that the bankruptcy court improperly calculated attorney’s fees based on § 328(a)’s contingency fee authorization and contended that the factors in § 330(a)(3) are not merely discretionary but must be considered. The conclusion reached is that the bankruptcy court erred in not fully considering the § 330(a)(3) and Johnson factors when assessing the reasonableness of attorney’s fees. While the court can determine the admissibility of various fee arrangements, it must adhere to the statutory factors in evaluating reasonableness. The bankruptcy court's finding that it could disregard the § 330(a)(3) factors was incorrect, as these factors are mandatory for consideration, and the court's discretion does not extend to ignoring statutory requirements.
Bankruptcy courts are required to evaluate the § 330(a)(3) factors when determining reasonable attorney’s fees, as established in In re Commercial Fin. Servs., 427 F.3d at 811. These factors include an assessment of the time spent on services, which the bankruptcy court failed to apply correctly in this case. The court found that several § 330(a)(3) factors and the Johnson factors favored Lurie, particularly in relation to the time spent, rates charged, and the necessity of services. The bankruptcy court noted that Lurie spent about forty hours on the case, equating to an hourly rate of $8,637.25 if calculated via a lodestar method. Despite this, the court concluded that Lurie deserved a fee increase due to perceived successful risk-taking, a conclusion challenged by the argument that Lurie did not face significant risk in the representation, as Lurie had a pre-existing retainer agreement ensuring compensation. The court correctly stated that it is not bound by the compensation agreement when determining reasonable fees under § 330, aligning with Ninth Circuit precedent which argues against enforcing pre-bankruptcy fee agreements to ensure the estate's orderly administration. This perspective is supported by cases such as In re Yermakov and In re Citation Corp.
Emphasizing the parties' pre-bankruptcy contract was an error in determining reasonable fees under 11 U.S.C. § 330. The bankruptcy court's analysis incorrectly focused on the "big risk/big reward" argument and the reasonableness of the pre-bankruptcy compensation agreement, neither of which pertain to the factor regarding the time spent on services as outlined in § 330(a)(3)(A). A proper application of this factor would argue against a large attorney's fee given that Lurie only spent about forty hours on the case, which the court noted favored Market Center, as the limited time expended weighed against the size of the award. The bankruptcy court also misapplied discretion by considering external factors that do not conform to the § 330(a)(3) framework. Although the court could weigh Lurie's credibility and the full repayment of creditors, it erred by assuming discretion to look outside the established factors. The conclusion is to reverse the bankruptcy court's award of attorney’s fees to Lurie and remand for proceedings that align with this opinion.
