Fitzgibbons v. Zeman ( 2010 )

FILED
United States Court of Appeals
Tenth Circuit
February 11, 2010
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
In re: WILLIS RAY MATNEY;
PAMELA KAY MATNEY,
Debtors.
No. 09-1170
---------------------------------------------- (No. CO-08-058)
(BAP)
JOHN E. FITZGIBBONS,
Appellant,
v.
SALLY J. ZEMAN, Trustee,
Appellee.
ORDER AND JUDGMENT *
Before GORSUCH and ANDERSON, Circuit Judges, and BRORBY, Senior
Circuit Judge.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Appellant John E. Fitzgibbons served as legal counsel for debtors in the
underlying bankruptcy proceeding. After the bankruptcy court confirmed debtors’
Chapter 13 Plan, Mr. Fitzgibbons submitted an application seeking $13,750 in
legal fees, though he claimed to have earned over $19,000. The Standing Chapter
13 Trustee objected to the application on numerous grounds. Following a
hearing, the bankruptcy court determined that Mr. Fitzgibbons’ fee should be
limited to the $4,750 he had already received for his legal services from debtors.
The Tenth Circuit Bankruptcy Appellate Panel (BAP) affirmed in an unpublished
decision, and later denied Mr. Fitzgibbons’ motion for rehearing. Mr. Fitzgibbons
now appeals from the BAP’s initial merits decision. 1 We exercise jurisdiction
under 28 U.S.C. § 158(d) and affirm.
Standard of Review
Although the case reaches us by way of the BAP, we independently review
the bankruptcy court’s decision. Daimler Chrysler Fin. Servs. Ams. L.L.C. v.
Ballard (In re Ballard), 526 F.3d 634, 636 (10th Cir. 2008). Absent an abuse of
discretion, we will not disturb its decision to award a reduced fee. See Rubner &
Kunter P.C. v. U.S. Trustee (In re Lederman Enters., Inc.), 997 F.2d 1321, 1322
1
Mr. Fitzgibbons filed his notice of appeal from the BAP’s initial decision
while his motion for rehearing was pending. That notice became effective for
purposes of appealing the initial decision upon the denial of rehearing. See
Fed. R. App. P. 6(b)(2)(A)(i). Mr. Fitzgibbons did not, however, amend the
notice after the denial of rehearing to include that later order in this appeal. See
Fed. R. App. P. 6(b)(2)(A)(ii).
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(10th Cir. 1993). Of course, such an award may turn on specific legal premises or
factual findings, and in that event “we review de novo any statutory interpretation
or other legal analysis underlying the [fee] decision and review for clear error any
supporting findings of fact.” Specialty Beverages, L.L.C. v. Pabst Brewing Co.,
537 F.3d 1165, 1183 (10th Cir. 2008) (quotation omitted). See In re Ballard,
526 F.3d at 636 (noting usual de novo and clear error standards apply to circuit
review of bankruptcy court decisions). Mr. Fitzgibbons also challenges an
evidentiary ruling at the fee hearing, involving the admission of expert opinion
testimony from a witness not previously disclosed as an expert. We review that
particular objection also for an abuse of discretion. See United States v. Charley,
189 F.3d 1251, 1261-62 (10th Cir. 1999).
Summary of Proceedings
The decisions issued by the bankruptcy court and the BAP discussed the
factual and procedural background at length, and that discussion need not be
repeated in full here. But we do set out those matters relevant to our disposition
of the issues raised in this appeal.
A. Fee Hearing
At the fee hearing, Mr. Fitzgibbons testified in favor of his application and
the Trustee testified against it. As the bankruptcy court noted, the fee sought was
well in excess of the presumptive fee of $1,800 for Chapter 13 proceedings
(increased to $3000 for more recent applications). The bulk of the excess was
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attributed to an adversary proceeding Mr. Fitzgibbons had pursued alongside the
usual plan confirmation process. His justification for doing so was that it was
essential to establish how much of his clients’ large tax debt (nearly $350,000)
was secured by an existing lien and how the remainder would be treated as to
dischargeability. He insisted that the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109-8, 119 Stat. 23,
interjected substantial uncertainty into dischargeability issues.
The adversary proceeding was resolved by a stipulation providing in
pertinent part that (1) the Internal Revenue Service (IRS) had properly perfected
its lien, which secured $14,594 of the tax debt in the bankruptcy; (2) the IRS was
also secured, outside of bankruptcy, in debtors’ retirement plans, valued (at about
$59,000) as of the date of the petition; (3) the latter amount could be accounted
for either as a secured claim in debtors’ Chapter 13 Plan or by retaining the IRS
lien on the retirement plans; and (4) debtors’ tax debt would be discharged upon
completion of Chapter 13 Plan payments. Aplt. App. at 180-82. Mr. Fitzgibbons
repeatedly stressed the value of this stipulation, which gave his clients the
assurance that if they complied with the stipulation and their associated Chapter
13 Plan, their tax liabilities would be put behind them. He concluded his case at
the hearing by saying “I think that certainty is worth the [additional $9000] that
I’m asking for.” Id. at 316.
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The Trustee expressed a very different view of the adversary proceeding,
seeing it as unnecessary. Most practitioners, she said, would just work through
such issues with the IRS, far more efficiently, in the ordinary course of the
confirmation process. And, as for the confirmation process here, she pointed out
numerous instances in which inaction or delay by Mr. Fitzgibbons had unduly
prolonged the proceedings and required multiple amendments to the Chapter 13
Plan. She also indicated that his fee application included time for researching
areas that a bankruptcy practitioner should have known or learned as a matter of
professional responsibility. But she did not in her direct testimony give an expert
opinion regarding fees. When counsel for the Trustee began to ask for her
opinion, Mr. Fitzgibbons objected on the basis that she had not been disclosed as
an expert witness, and the bankruptcy court promptly sustained the objection.
During cross-examination, however, Mr. Fitzgibbons repeatedly asked the
Trustee to opine on matters relating to the substance of his legal representation
and the reasonableness of his fee request. After eliciting a particular unfavorable
opinion, he began inquiring into the Trustee’s professional qualifications for
expressing the opinion, to which counsel for the Trustee objected. At that point,
the bankruptcy court held that Mr. Fitzgibbons had already opened the door to
expert opinion testimony from the Trustee, so either side could pursue relevant
inquiries in that regard. On redirect, counsel for the Trustee obtained expert
opinions on the following material points: (1) filing five Chapter 13 Plans before
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getting one confirmed in this case was unreasonable; with adequate factual
research and effective communication by Mr. Fitzgibbons, no more than two
should have been necessary; (2) it was unreasonable to pursue the adversary
proceeding in addition to the confirmation process; and (3) taking into account
the Johnson factors governing fee awards, 2 a fee in the neighborhood of $4,600
would be reasonable.
B. Bankruptcy Court’s Fee Order
The bankruptcy court issued a thorough decision. First, it examined all of
the governing factors in light of the record. While the testimony of the Trustee
was important, the court did not simply adopt her conclusions. Rather, the court
considered her testimony along with the rest of the record, noting where and why
it agreed with particular points she had made. See Bankruptcy Court Order 3 at
4-8. Indeed, the court concluded its analysis of the fee factors by stating that
“[b]ased on the Court’s experience in reviewing fee applications, this case falls
much closer to the lower [i.e., $1,800] range of fees it has awarded.” Id. at 8(emphasis added).
2
The factors set out in the seminal case of Johnson v. Georgia Highway
Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), are applicable to attorney fee
determinations in bankruptcy cases under 11 U.S.C. § 330. See Houlihan Lokey
Howard & Zukin Capital v. Unsecured Creditors’ Liquidating Trust (In re
Commercial Fin. Servs., Inc.), 427 F.3d 804, 811 (10th Cir. 2005).
3
The bankruptcy court’s unpublished fee order is included as Attachment 1
to Appellant’s Opening Brief.
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The bankruptcy court then considered several of the broader objections the
Trustee had raised in opposition to the fee application. The court agreed with
several criticisms of the timeliness and competence of counsel’s prosecution of
the bankruptcy case. Id. The court also found that “the detail and description of
the legal services set forth [in the fee application] to be woefully inadequate . . .
to determine whether the amount of time for such legal services was reasonable,”
noting that “[t]he lack of information provides additional support for not allowing
all requested fees.” Id. at 9. Finally, and “most troubling to the Court,” id., was
Mr. Fitzgibbons’ noncompliance with fee disclosure requirements. The court’s
explanation of why–consistent with a list of cited cases–this omission is in itself
“more than sufficient to deny some or all of his requested fees in this case,” id. at
10, is worth quoting:
[T]he Court understands Mr. Fitzgibbons to have received $2,250 at
or around the time the Debtors’ case was filed. This information was
not provided until approximately fourteen months after the case was
filed. However, at some other time during the case, unbeknownst to
the Trustee, creditors, or the Court, the Debtors must have paid
Fitzgibbons an additional $2,500, based on his Fee Application,
which states Fitzgibbons has been paid $4,750 to date. This presents
a host of questions, not the least of which is the question of how the
Debtors obtained additional funds to pay Fitzgibbons while they were
presumably committing all of their disposable income to their
Chapter 13 plan. This illustrates the reason for the fee disclosure
requirement under [11 U.S.C.] § 329 and Fed. R. Bankr. P. 2016(b),
to ensure the Court can carry out its obligation to scrutinize
compensation of debtor’s attorneys and thereby protect creditors.
Id.
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Having concluded, “[b]ased on its review of the Johnson factors and the
Trustee’s Objection to the Fee Application,” that “the requested legal fees are not
reasonable under the circumstances of this case,” id., the bankruptcy court came
to the ultimate question of what fee, if any, to allow. At this point, the court
recited that “the Trustee was endorsed as an expert witness in Chapter 13 fee
matters and indicated she believed a reasonable fee in this case would be
approximately $4,600.” Id. The court essentially adopted that figure, though it
concluded that ordering disgorgement of the additional $150 that debtors had
already paid Mr. Fitzgibbons was not appropriate. Id. It therefore awarded
Mr. Fitzgibbons the $4,750 for his legal services in the case. Id.
C. Appeal to the BAP
Mr. Fitzgibbons raised two issues in his appeal to the BAP:
1. Whether the [bankruptcy] court erred in allowing expert
testimony which had not been disclosed as required by
Fed. R. Civ. P. 26(a)(2).
2. Whether in the wake of the “new super light (chapter 13)
discharge” enacted by [BAPCPA] the [bankruptcy] court erred in
refusing to award attorney fees in conjunction with Adversary
Proceeding 09-01906 MER in which [the IRS] stipulated the bulk of
debtors’ $354, 004.49 in federal taxes would be discharged upon
payment of $14,594.00 through the Chapter 13 Plan.
Aplt. App. at 5.
The BAP held that the bankruptcy court had not abused its discretion in
allowing the Trustee’s expert testimony, for several reasons. The substance of
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her testimony clearly fell within the parameters of her pretrial disclosure as a lay
witness (concerning Mr. Fitzgibbons’ legal representation, the reasonableness of
his requested fee, and representation by other attorneys in similar cases), and the
bankruptcy court did not err in finding that Mr. Fitzgibbons had waived his right
to object to her use as an expert on such matters by his own questioning on
cross-examination. BAP Opinion 4 at 11-12. The BAP also noted that the
bankruptcy court did not rely solely on the Trustee’s testimony in resolving the
fee application; indeed, that much of what the Trustee had touched on was also
within the expertise of the bankruptcy court itself. Id. at 12.
The BAP addressed the second issue raised by Mr. Fitzgibbons, regarding
the disallowance of fees for the adversary proceeding, somewhat less directly, as
encompassed within the overall determination of reasonableness. As to that
determination, the BAP recounted the bankruptcy court’s analysis of the Johnson
factors and the Trustees objections and concluded that the bankruptcy court
“1) used the appropriate factors to examine and evaluate the Fee Application;
2) conducted a thorough analysis of all of the bases for Trustee’s objection; 3) did
not make any findings of fact that the record on appeal demonstrates were clearly
erroneous; and 4) issued a well-supported and well-reasoned decision.” Id. at 17.
4
The BAP’s unpublished opinion is included as Attachment 3 to Appellant’s
Opening Brief.
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Issues Raised on this Appeal
Mr. Fitzgibbons has framed his issues on this appeal in terms that differ
considerably from those used in his appeal to the BAP. Indeed, his challenge to
the Trustee’s expert testimony for lack of pretrial disclosure is not even alluded to
in his formal Statement of Issues, see Aplt. Opening Br. at 2, and there are only
passing references to the bankruptcy court’s finding of waiver on that point in the
argument section where a very different challenge to her testimony is pursued, see
id. at 25, 26. It appears the non-disclosure objection, as a distinct challenge to
the admission of the Trustee’s expert testimony, has been abandoned. In any
event, for the reasons explained by the bankruptcy court and the BAP, we would
not find any abuse of discretion by the bankruptcy court in this regard.
The two issues Mr. Fitzgibbons has designated for our review are:
Whether the bankruptcy court and BAP opinions should be reversed
and reviewed de novo because the “legal underpinnings” show these
courts relied on the Trustee’s opinion that filing an adversary
proceeding was unnecessary because the “cram down” provisions of
11 USCA 1325(a)(5) and 506 should be utilized and that an
installment agreement was cancelled even though the Trustee stated
she had not studied Chapter 13 tax dischargeability issues of
BAPCPA.
Whether the bankruptcy court and BAP should be reversed for abuse
of discretion in failing to act as the Daubert gatekeeper and in failing
to consider National Association of Bankruptcy Judges, American
Bankruptcy Law scholarly articles and cases concerning the new
“superlight” Ch 13 bankruptcy discharge[.]
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Aplt. Opening Br. at 2. Most aspects of these arguments can be traced to points
at least arguably preserved in Mr. Fitzgibbons’ appeal to the BAP, but we stress
that assignments of error are not subject to substantive alteration from one
appellate level to the next. Wholesale reformulations of the sort evident here risk
adverse procedural consequences for the appellant who may omit preserved issues
and substitute unpreserved issues in the process.
Most of Mr. Fitzgibbons’ briefing challenges, on various legal bases, the
bankruptcy court’s conclusion that the adversary proceeding was unnecessary in
light of what could be done in connection with the Plan confirmation process.
The first of these assertedly erroneous “legal underpinnings” of the court’s
conclusion relates to debtors’ retirement plans. Mr. Fitzgibbons argues that these
plans fell outside the bankruptcy estate under Patterson v. Shumate, 504 U.S. 753(1992), and hence the rights of the IRS in these significant assets would not be
resolved by the Chapter 13 Plan. But he does not explain how an adversary
proceeding in the bankruptcy case would have resolved the parties’ interests in
this non-bankruptcy property. In any event, this whole line of argument misses
the basic point here. The thrust of the Trustee’s testimony and the bankruptcy
court’s conclusion about the adversary proceeding being ill-advised was that an
experienced Chapter 13 practitioner would have communicated effectively and
efficiently with the IRS to work out an agreement about this sort of complication
during the Plan confirmation process, making ancillary adversarial proceedings
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unnecessary. The fact that the Plan itself would not directly address the matter
does not nullify this point. Mr. Fitzgibbons has not demonstrated why it was
necessary to bring an adversary proceeding in order to reach a satisfactory
agreement with the IRS regarding debtors’ retirement plans.
Mr. Fitzgibbons also notes that debtors had entered into an agreement with
the IRS to make monthly installment payments of $1,000 on their tax liability,
and he insists that the need for clarification of the consequences, particularly
under BAPCPA, of their default on this agreement prior to filing for bankruptcy
warranted pursuit of the adversary proceeding. He cites legislative statements
that, he says, show BAPCPA added provisions to 11 U.S.C § 523 to preclude
discharge of tax-settlement installment obligations due within one year before the
bankruptcy filing. Actually, the legislative history he quotes from in his brief and
provides in his appendix, Aplt. App. at 75-79, is not for BAPCPA. It comes from
the House and Senate Reports for the Bankruptcy Reform Act of 1978. 5 And aside
from this patently inapposite legislative history (Congress has amended § 523 at
least ten times since 1978), Mr. Fitzgibbons offers no argument based on current
statutory language to explain his concern about the potential nondischargeability
of debtors’ obligations under the tax settlement agreement. In any event, we
come back to the same point made above in connection with debtors’ retirement
5
See H.R. Rep. 95-595, 1978 U.S.C.C.A.N. 5963, 6320-21, 6499-6500;
S. Rep. 95-989, 1978 U.S.C.C.A.N. 5787, 5863-66.
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plans: Mr. Fitzgibbons has not shown that his pursuit of the adversary proceeding
was a necessary response to the potential issue he perceived; there is nothing to
suggest that the agreement reached with the IRS could not have been worked out
effectively and efficiently in the course of the confirmation process.
Mr. Fitzgibbons also seems to contend that the BAPCPA amendment to
11 U.S.C. § 1325(a), adding the so-called “hanging paragraph” to exempt some
creditors from the “cram down” rule, 6 may have made some of debtors’ unpaid
installment obligations to the IRS non-dischargeable, justifying his resort to the
adversarial proceeding to resolve the issue. The relevant change here applies to
debts “incurred during the 1-year period preceding” bankruptcy. Id. But the
unpaid tax liability owed by debtors arose many years before bankruptcy; IRS
installment agreements are merely one authorized means of collecting an existing
tax debt. See 26 U.S.C. § 6159. And, in any event, as we have noted repeatedly
in other respects, Mr. Fitzgibbons has not established that resolution of the legal
issue he perceives here required resort to an adversary hearing.
We note that in connection with his references to cram down and § 1325(a),
Mr. Fitzgibbons also advances an additional objection to the allowance of expert
testimony from the Trustee. He contends her responses to his questions about her
6
Briefly put, the “cram down” rule, based on the operation of § 1325(a)(5)
and 11 U.S.C. § 506, bifurcates a secured claim into a secured component limited
to the current value of the collateral and an unsecured claim for the remainder.
See In re Ballard, 526 F.3d at 637-38 (discussing cram down and BAPCPA’s
amendment adding “hanging” paragraph at end of § 1325(a)).
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study of BAPCPA with regard to dischargeability and cram down demonstrated
that she was not qualified to opine on the matter. Mr. Fitzgibbons never raised
this (or any other) substantive objection to the Trustee’s qualification to provide
expert testimony, and we would not disturb the decision under review on the basis
of this untimely objection. But we do not wish to suggest there was a problem
with the Trustee’s expert testimony. She was qualified as an expert through
questioning by Trustee’s counsel, and the testimony Mr. Fitzgibbons cites as
admitting some gap in her knowledge regarding dischargeability and cram down
after BAPCPA does not support his claim. In response to his inquiry regarding
the amount of time she had spent studying BAPCPA and dischargeability issues,
the Trustee said, “A lot of time. Not on the one issue of tax dischargeability, but
a lot of time on the new law.” Aplt. App. at 295. Mr. Fitzgibbons’ strained effort
to read this statement as disclaiming any study of BAPCPA’s effect on
dischargeability issues is utterly unpersuasive.
Mr. Fitzgibbons also contends the bankruptcy court abused its discretion by
holding that some legal materials he had submitted discussing changes BAPCPA
made in the area of dischargeability did not “‘per se, support the filing of an
adversary proceeding under circumstances similar to this case.’” Aplt. Opening
Br. at 26 (quoting Bankruptcy Court Order at 6). But he offers no particularized
argument in this regard, such as specific legal points substantiated in the
materials that would per se support his filing of the adversary proceeding. Rather,
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he makes a legally inapposite objection under the rules governing admission and
exclusion of evidence on grounds of relevance and prejudice. The bankruptcy
court did not exclude the cited materials; it admitted them and merely found them
insufficiently persuasive to conclusively outweigh the other evidence the court
discussed at length in its decision.
Finally, it is important to acknowledge the importance the bankruptcy court
rightly placed on Mr. Fitzgibbons’ noncompliance with fee disclosure obligations.
While it is not clear whether the court intended this misfeasance to serve–as it
may have–as a fully distinct alternative rationale for limiting Mr. Fitztgibbons’
fee to what he had already been paid, it certainly augments the other justifications
the court expressed for its fee reduction that we have considered above.
The judgment of the BAP affirming the order of the Bankruptcy Court is
AFFIRMED.
Entered for the Court
Wade Brorby
Senior Circuit Judge
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