District Court Addresses Due Process in Fee Hearing

Posted by NCBRC - February 21, 2019

The district court found that the chapter 7 trustee’s legal representative was deprived of due process when the bankruptcy court reduced a portion of its fees without providing notice and an opportunity to be heard. Arnall, Golden, Gregory, LLP, v. Stroud, No. 18-3755 (N.D. Ga. Jan. 28, 2019).

Appellant, Arnall, Golden, Gregory, LLP, sought $13,607.09 in attorney fees for services performed for the chapter 7 trustee in connection with the debtor/appellee’s motion to reconvert her case to chapter 13. After a fee hearing, the court found that $3,575.50 of the appellant’s fees were for services constituting trustee duties, and that $3,000 of the $6,000 in fees claimed for work on litigation of the conversion motion, were not reasonable and necessary. The court thus reduced the fees to $7,000.00.

On appeal, the appellant argued that it was deprived of due process when the bankruptcy court allowed the debtor to object to the fee application at the fee hearing without having filed objections beforehand. It also argued that it was deprived of due process when the court found that certain of its charges were properly deemed trustee duties where the court did not notify appellant at the hearing that it questioned those charges. The district court addressed those legal issues de novo. It found that the discretionary nature of a court’s allowance of fees under section 330(a)(1)(A) alerts fee applicants of their duty to defend their application. Therefore, it was not a deprivation of due process to require appellant to conduct such defense at the hearing notwithstanding the absence of a pre-hearing objection by the debtor.

With respect to the court’s finding that certain charges were more appropriately deemed trustee services than legal services, however, the district court agreed with appellant that it was deprived of due process. In that case, the bankruptcy court did not alert appellant that it questioned that aspect of its fees during the hearing. Instead, the appellant first learned of the court’s skepticism with respect to those fees when the court issued its ruling. Therefore, the appellant was not given the opportunity to be heard as required by section 330(a).

The appellant also argued that the bankruptcy court erred when it reduced its fees for its work on the conversion motion as not having been reasonable and necessary. The court addressed this factual finding under an abuse of discretion standard and found that the bankruptcy court addressed the issue with the appellant at the fee hearing and based her conclusions on a reasonable interpretation of the facts and applicable law.

The district court remanded the bankruptcy court’s reduction of the $3575.50 as trustee duties, and affirmed the other rulings.

Stroud ND Ga Jan 2019

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