Contingency
Fees Case Analysis
April
12, 2006
Inexplicably,
the court never even addresses the language of the statute, or attempts to explain
why the reasoning of the Fifth Circuit in Daniels v. Brown, 325 F.3d 690 (5th
Cir. 2003), is erroneous.
The
heart of this issue is the meaning of the following language in 11 U.S.C. 328(a):
“Notwithstanding such terms and conditions, the court may allow compensation
different from the compensation provided under such terms and conditions after
the conclusion of such employment, if such terms and conditions prove to have
been improvident in light of developments not capable of being anticipated at
the time of the fixing of such terms and conditions.”
Indisputably,
the court and the Trustee did not anticipate that the money would be recovered
as easily, and with as few billable hours, as it was.
However,
that is not the issue; the issue is whether the ease of recovery was capable of
being anticipated. Just as indisputably, the ease of recovery was capable of anticipation.
The
Revision Notes to the statute make clear that this is the proper inquiry, stating
that the issue is whether the development was “unanticipatable”; the
inquiry is not whether the development was “unanticipated.” (Whether
“unanticipatable” is an actual word can be debated, but the meaning
of the term is nevertheless clear, and is not synonymous with “unanticipated”).
The
Fifth Circuit understood this. It acknowledged that the recovery was “relatively”
easy and that the legal issues facing appointed counsel were “straightforward.”
Barron, 325 F.3d at 692.
Nevertheless,
it held, “There appear to be no intervening circumstances that were incapable
of anticipation by the bankruptcy court at the time it approved the award.
Although
the [bankruptcy court’s reasoning that the fee was unreasonable] has some
force when viewed through today’s lenses, the factors relied upon to find
the award improvident were foreseeable (emphasis in original).” Id., at 694.
Nothing
in In re Lytton’s, 832 F.2d 395 (7th Cir. 1987), compels a different result
in the Seventh Circuit.
The
court in Lytton’s emphasized at the outset, “The only issue we need
to decide is whether the district court properly dismissed Cluett’s appeal
from the [order appointing counsel] for lack of finality.” Id., at 396.
The court
later noted that fees could be reduced in some circumstances. However, the court
at no point suggested that fees could be reduced for something that was unanticipated,
but capable of being anticipated. The opinion only holds that the statute explicitly
permits reductions, and that, as long as that possibility exists, there is no
final order to appeal.
Nothing
in the cases which Judge Kelley cites for support address the central issue either.
They address only whether the fee was reasonable, but not the issue the Fifth
Circuit considered — whether there was an intervening circumstance that was
unanticipatable. In re American Mortgage Investment Services, 158 B.R. 43 (Bankr.D.N.J.
1993); In re Begun, 162 B.R. 168 (N.D.Ill.1993).
As
a result, attorneys retained by trustees on a contingency fee basis, who have
their fees reduced merely because they obtained a quick recovery for the estate,
should feel confident on appeal that they can recover the fees originally agreed
to, notwithstanding the decision in this case.
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David Ziemer
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David
Ziemer can be reached by email.
