In re: Erik J. Sundquist and Renee Sundquist

FILED
FEB 27 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. EC-17-1347-LBS
ERIK J. SUNDQUIST and RENEE Bk. No. 2:10-bk-35624
SUNDQUIST,
Adv. No. 2:14-ap-2278
Debtors.
DENNISE HENDERSON; LAW OFFICE
OF DENNISE HENDERSON,
Appellants,
MEMORANDUM*
v.
ERIK J. SUNDQUIST; RENEE
SUNDQUIST,
Appellees.
Argued and Submitted on January 24, 2019
at Sacramento, California
Filed – February 27, 2019
Appeal from the United States Bankruptcy Court
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
for the Eastern District of California
Honorable Christopher M. Klein, Bankruptcy Judge, Presiding
Appearances: Richard Lawrence Antognini argued for Appellants;
Mark E. Ellis of Ellis Law Group, LLP, argued for
Appellees.
Before: LAFFERTY, BRAND, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Dennise Henderson and the Law Office of Dennise Henderson1
challenge the bankruptcy court’s order expunging an attorney’s lien
asserted against the proceeds of a post-judgment settlement of litigation
between their former clients, debtors Erik and Renée Sundquist, and Bank
of America, N.A. (“BANA”). Substantively, however, the challenge is to the
bankruptcy court’s underlying ruling canceling the contingency fee
agreement between Ms. Henderson and the Sundquists and limiting
Ms. Henderson’s compensation to $70,000 as the reasonable value of her
services. Neither the bankruptcy court nor the parties focused on the
attorney’s lien issue itself.
Ms. Henderson has not demonstrated that the bankruptcy court
1
Appellants hereafter are referred to collectively as “Ms. Henderson.”
2
abused its discretion either in canceling the contingency fee agreement or
in limiting her compensation to $70,000 and thus ordering the attorney’s
lien expunged. Accordingly, we AFFIRM.
FACTUAL BACKGROUND
Ms. Henderson represented the Sundquists in their chapter 132 case
filed June 14, 2010. During the bankruptcy case, BANA, the secured lender
on the Sundquists’ home, took numerous actions in violation of the
automatic stay, including foreclosure and prosecution of an unlawful
detainer action.3 As a result, the Sundquists gave up their effort to use a
chapter 13 plan to cure a bank-induced default while they attempted to
negotiate a mortgage modification. They voluntarily dismissed the
chapter 13 case on September 20, 2010, and Ms. Henderson ceased to
represent them.
Ms. Henderson apparently took no steps to force BANA to stop its
stay violations during the bankruptcy case, and, after the case was
dismissed, BANA exacerbated the consequences of its prior stay violations.
2
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
3
A detailed recitation of Bank of America’s egregious conduct is found in the
bankruptcy court’s opinion on the merits of the stay violation litigation. Sundquist v.
Bank of America (In re Sundquist), 566 B.R. 563 (Bankr. E.D. Cal. 2017) (“Sundquist I”),
vacated in part by Sundquist v. Bank of America (In re Sundquist), 580 B.R. 536 (Bankr. E.D.
Cal. 2018).
3
See Sundquist I, 566 B.R. at 579-582.
In 2011, the Sundquists, represented by a different attorney, sued
BANA in state court on several grounds, including wrongful foreclosure.
The complaint was dismissed by the state trial court. On appeal, the
California Third District Court of Appeal reversed the dismissal. The
California appellate court also ruled that § 362(k)(1) preempts state law
wrongful foreclosure claims that are based solely on alleged violations of
the automatic stay, so that if the Sundquists desired relief on account of the
bankruptcy automatic stay violations, they would have to return to federal
court.
Thereafter, the Sundquists re-employed Ms. Henderson to prosecute
their § 362(k)(1) cause of action in federal court. Ms. Henderson filed a
complaint in the district court, which referred the action to the bankruptcy
court as a core proceeding. The bankruptcy court held a bench trial in May
2016 and took the matter under advisement.
While the matter was under advisement, the bankruptcy court issued
an order reminding Ms. Henderson that she had not timely filed under
Rule 2016(b) the statement required by § 329 disclosing the compensation
agreed to be paid to her by the Sundquists for representing them in the
adversary proceeding. Ms. Henderson filed a response and a supplemental
statement stating that fees were to be based on an unspecified contingency
rate. The bankruptcy court then ordered Ms. Henderson to file a copy of
4
the contingency fee agreement. The order required that she justify the
agreed contingency fee arrangement as representing the reasonable value
of services within the meaning of § 329(b) and that she explain how the
contingency fee comported with the attorneys’ fee structure set forth in
§ 362(k)(1).
Ms. Henderson filed a copy of a contingency fee agreement dated
October 22, 2014. That fee agreement was actually two different documents
pasted together with non-consecutive paragraphs. The first two pages
ended in the middle of paragraph no. 3; the third page, in a distinctly
different typeface, began with paragraph no. 11. Ms. Henderson conceded
that the agreement was a 2016 document backdated to 2014 and apologized
for filing an inaccurate copy of the fee agreement, but she never filed a
corrected copy.4
Ms. Henderson concurrently filed “Supplemental Briefing Regarding
Attorneys’ Fees,” in which she urged that § 329(b) reasonable
compensation be determined consistent with § 330(a)(3). She stated, “I will
file a time billing with the actual time expended and will only seek the
lesser of the contingency agreement or the reasonable hourly rate times the
4
Ms. Henderson’s counsel later represented to the bankruptcy court that the
original contingency fee agreement had been lost.
5
number of hours expended consistent with the Lodestar5 method.” Other
than a naked assertion that customary compensation can include a
contingency fee, she offered no justification for the contingency fee
agreement.
A few days later, Ms. Henderson filed a declaration documenting
207.56 hours spent on the § 362(k)(1) adversary proceeding at a rate of
$300.00 per hour ($62,268), together with costs for depositions, transcripts,
and trial binders of $6,606.55 for a total of $68,874.55. Ms. Henderson did
not seek an enhancement above her lodestar compensation, nor did she
proffer specific evidence to rebut the presumption against a bonus.
Accordingly, the bankruptcy court fixed the attorneys’ fee component of
§ 362(k)(1) actual damages at $70,000, slightly more than the lodestar
amount that Ms. Henderson stated she was requesting.
Despite the fact that Ms. Henderson never provided a corrected copy
of the contingency fee agreement, the bankruptcy court treated the
agreement at “face value.” Sundquist II, 576 B.R. at 867-68. The court
concluded that the contingency fee that would result in this matter
exceeded the reasonable value of services within the meaning of § 329(b)
5
The lodestar rate is a reasonable hourly rate multiplied by the number of hours
actually and reasonably expended, and is presumptively a reasonable fee in a
bankruptcy case. Sundquist v. Bank of America, N.A. (In re Sundquist), 576 B.R. 858, 876
(Bankr. E.D. Cal. 2017) (Sundquist II) (citing Burgess v. Klenske (In re Manoa Finance Co.,
Inc.), 853 F.2d 687, 691–92 (9th Cir. 1988)).
6
and canceled it. Sundquist I, 566 B.R. at 597.
In March 2017, the court issued a written opinion and entered a
judgment awarding the Sundquists $1,074,581.50 in actual damages and
$5,000,000.00 in punitive damages, a total of $6,074,581.50. Id. at 563.
Additional punitive damages of $45,000,000.00 were allocated by
mandatory injunction to the National Consumer Law Center, National
Consumer Bankruptcy Center, and five public law schools. Id. at 618-19.
The Sundquists were also enjoined, by mandatory injunction, to deliver
$70,000.00 to Ms. Henderson as § 329(b) “reasonable” compensation. Id. at
618.
Shortly thereafter, the Sundquists hired new counsel to replace
Ms. Henderson. She then filed a Notice of Lien “by virtue of a written fee
agreement with [the Sundquists] dated October 22, 2014,” on any judgment
or settlement paid to secure the payment for legal services rendered and
costs and expenses “in accordance with the terms of the aforementioned fee
agreement.” According to the bankruptcy court, the lien was filed “to
create ‘hold-up’ value by impeding settlement efforts by plaintiffs and
defendant in order to extract a fee ‘far higher’ than what this court
authorized as ‘reasonable’ compensation under § 329(b).” Sundquist II, 576
B.R. at 865.
The Sundquists and BANA eventually reached a settlement.
Accordingly, in August 2017, the Sundquists, through their new counsel,
7
filed three motions: a motion to expunge Ms. Henderson’s attorney’s lien
(“Motion to Expunge”), a motion to vacate the March 2017 judgment, and a
motion to dismiss the adversary proceeding.
In their Motion to Expunge, the Sundquists asserted that: (1) under
§ 329 the bankruptcy court had the authority to determine the
reasonableness of attorney’s fees and had ancillary jurisdiction to do so;
(2) the attorney’s lien should be expunged because Ms. Henderson had
failed to comply with Rule 3-300 of the California Rules of Professional
Conduct, which prohibits an attorney from obtaining a pecuniary interest
adverse to a client unless certain requirements are satisfied; (3) the fee
agreement had been voided by the Sundquists due to Ms. Henderson’s
failure to comply with California Business & Professions Code § 6147,
which requires a recitation that the fee is negotiable, and § 6148, which
requires for an hourly fee arrangement that there be a written contract
setting forth the terms of compensation, including hourly rates; (4) the fee
agreement was unconscionable as exorbitant and disproportionate to the
services performed; (5) the court properly ruled on the reasonableness of
the fees pursuant to Civil Rule 54, applicable via Rule 7054; and (6)
Ms. Henderson was estopped by her representation that she would accept
the amount awarded by the court. The Sundquists complained that the lien
“effectively blocks the Sundquists from receiving the entire amount of the
approximately $6,000,000 awarded to them, not just the $70,000 awarded
8
for fees and costs.”
Ms. Henderson filed an opposition, arguing that: (1) the bankruptcy
court lacked jurisdiction to rule on the validity of the lien because the
bankruptcy case had been administered and closed, thus there was no
bankruptcy estate to protect; (2) even if the court had ancillary jurisdiction,
it should permit the matter to be litigated in state court; (3) Rule 3-300 of
the California Rules of Professional Conduct does not apply to contingency
fee arrangements; (4) although Ms. Henderson admittedly had failed to
comply with California Business & Professions Code § 6147 and thus the
Sundquists could void the fee agreement, under California law an attorney
still maintains a lien on the client’s recovery; (5) the reasonable value of
Ms. Henderson’s services far exceeded $70,000, and the bankruptcy court
(I) did not permit an adequate opportunity for Ms. Henderson to present
evidence on the appropriate fee, nor (ii) did it consider the appropriate
factors, i.e., the risks involved, preclusion of other employment, novelty of
the case, and results achieved; (6) the contingency fee was not
unconscionable; and (7) there was no fraud on the court and no basis for
estoppel.
Ms. Henderson concurrently filed a declaration in which she stated
that when she stated in her September 2016 supplemental brief that she
would seek the lesser of the amount due under the contingency fee
agreement or the amount calculated by the lodestar method, she did not
9
understand that the court was considering invalidating the contingency fee
agreement and limiting her compensation to her hourly rate and actual
costs. She stated that she assumed the court would use the information to
calculate the amount of fees to award the Sundquists as compensatory
damages but not use it to limit the amount of fees she could collect from
the Sundquists.
After a hearing, the bankruptcy court took the matter under
advisement. In November 2017, it issued a written opinion, an order
granting the Motion to Expunge, and a final judgment regarding
Ms. Henderson’s fees, which provided that the contingency fee agreement
was canceled and that the reasonable compensation for Ms. Henderson’s
services under § 329 was $70,000.
Ms. Henderson timely appealed.6
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334and 157(b)(2)(A) and (O). Subject to the discussion below, we have
jurisdiction under 28 U.S.C. § 158.
6
By published decision issued in January 2018, the bankruptcy court denied the
Sundquists’ motion to dismiss the adversary proceeding but granted the motion to
vacate in part, vacating only the damages component of the judgment. Sundquist v. Bank
of America (In re Sundquist), 580 B.R. 536 (Bankr. E.D. Cal. 2018). The court’s opinion
provided that the judgment canceling Ms. Henderson’s fee contract pursuant to § 329(b)
would remain in effect. Id. at 556.
10
ISSUES
Does this Panel have jurisdiction over the issues on appeal?
Did the bankruptcy court abuse its discretion in canceling the
contingency fee agreement?
Did the bankrupt court abuse its discretion in limiting the amount of
Ms. Henderson’s attorney’s fees to $70,000 and expunging her attorney’s
lien?
STANDARD OF REVIEW
We review a bankruptcy court’s award of attorney’s fees as a
component of § 362(k) damages for abuse of discretion. See Eskanos & Adler,
P.C. v. Roman (In re Roman), 283 B.R. 1, 7 (9th Cir. BAP 2002). See also
America’s Servicing Co. v. Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d
1095, 1101 (9th Cir. 2015) (courts awarding fees under § 362(k) retain the
discretion to eliminate unnecessary or plainly excessive fees).
To determine whether the bankruptcy court abused its discretion, we
conduct a two-step inquiry: (1) we review de novo whether the bankruptcy
court “identified the correct legal rule to apply to the relief requested” and
(2) if it did, whether the bankruptcy court’s application of the legal
standard was illogical, implausible, or “without support in inferences that
may be drawn from the facts in the record.” United States v. Hinkson, 585
F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).
11
DISCUSSION
A. This Panel has jurisdiction over the issues raised by
Ms. Henderson.
The Sundquists contend that we lack jurisdiction over the issues of
the cancellation of the contingency fee agreement and the fixing of
Ms. Henderson’s fees at $70,000, which were initially determined in the
bankruptcy court’s March 2017 judgment. Ms. Henderson timely filed a
notice of appeal of that judgment, but that appeal (BAP No. 17-1103) was
dismissed for lack of prosecution.
The appeal period for the March 2017 judgment was tolled by
BANA’s timely filing of a motion under Civil Rule 59 (applicable via Rule
9023) for amended findings. See Rule 8002(b); Scott v. Younger, 739 F.2d
1464, 1467 (9th Cir. 1984) (timely Rule 59(e) motion tolls the running of the
time limitations for filing the notice of appeal until the trial court rules on
the motion). The bankruptcy court never ruled on that motion, and it was
mooted by the parties’ subsequent settlement and request to vacate the
judgment and dismiss the adversary proceeding, which the bankruptcy
court disposed of in January 2018. The bankruptcy court issued the order
on appeal on November 15, 2017. Ms. Henderson timely filed a notice of
appeal on November 28, 2017. The bankruptcy court issued a judgment
regarding her attorney’s fees on November 30, 2017, thus making its
determinations final.
12
In short, because of the pending tolling motion, the appeal period did
not begin to run until the bankruptcy court entered its order to expunge the
lien. Thus Ms. Henderson’s notice of appeal was timely, and we have
jurisdiction over Ms. Henderson’s appeal of the order granting the Motion
to Expunge and all of the issues decided in the court’s underlying opinion.
B. The Bankruptcy Court’s Rulings
In its March 2017 opinion, the bankruptcy court stated that it would
cancel the contingent fee contract under § 329(b)7 because it called for
excessive compensation. The court determined that under the lodestar
analysis, the reasonable value of the legal services provided by
Ms. Henderson was $70,000. Sundquist I, 566 B.R. at 597. The court cited
two independent bases for these conclusions. First, a “contingency fee
agreement in a situation in which attorney’s fees are an element of
damages leads to contingency fees on contingency fees, which would set
up a repetitive loop in which fees would increase to infinity.” Id. Second, in
various comments throughout the opinion, the bankruptcy court cited
Ms. Henderson’s lack of competence in her trial presentation.
In its November 2017 opinion on the Motion to Expunge, the court
rejected Ms. Henderson’s arguments that it lacked jurisdiction over the
7
That subsection provides, in relevant part, “[i]f such compensation exceeds the
reasonable value of any such services, the court may cancel any such agreement, or
order the return of any such payment, to the extent excessive . . . .”
13
attorney’s lien issue or, alternatively, that it should abstain from hearing
the matter. The court ruled that the Motion to Expunge involved issues that
were both “arising in” and “related to” the bankruptcy case and, because
the underlying fees were fixed pursuant to § 329(b), the court had
jurisdiction under 28 U.S.C. §§ 1334 and 1367 to rule on it despite the fact
that the bankruptcy estate had ceased to exist when the bankruptcy case
was dismissed and closed. Sundquist II, 576 B.R. at 871-74. The bankruptcy
court ruled that neither mandatory nor permissive abstention were
appropriate given that there was no parallel action pending in state court (a
requirement for mandatory abstention) and because there were no factors
weighing in favor of permissive abstention. Id. at 874.
The court also ruled that quantum meruit principles could not rescue
Ms. Henderson from cancellation of the contingency fee contract or entitle
her to compensation above the amount documented in her declaration
because she lacked clean hands, and even under quantum meruit
principles, the reasonable fee would be $70,000. Id. at 881.
In this appeal, Ms. Henderson has not challenged the jurisdiction,
abstention, or quantum meruit rulings. Her challenge is to the bankruptcy
court’s reaffirmance of its ruling on the cancellation of the contingency fee
agreement and limitation of compensation (and the resulting expungement
of her attorney’s lien). The bankruptcy court elaborated on the fee ruling in
its opinion on the Motion to Expunge.
14
Specifically, the bankruptcy court ruled that under § 329, it had the
authority to cancel fee agreements and to order the return of payments to
the extent they exceed the reasonable value of services provided.
Alternatively, it pointed out that under Schwartz-Tallard, the bankruptcy
court has the “discretion to eliminate unnecessary or plainly excessive fees”
in awarding damages under § 362(k). 803 F.3d at 1101. The court noted that
it had performed the lodestar analysis in reaching its conclusion that
$70,000 was the reasonable value of Ms. Henderson’s services, noting that
Ms. Henderson had never explained how the contingency fee agreement
represented the reasonable value of her services under § 329(b) and
comported with the attorney’s fee structure of § 362(k)(1).8 And, based on
Ms. Henderson’s prior representation that she would seek only the lesser of
the contingency fee agreement or the lodestar amount, the court found that
she had “waived and renounced her right to claim additional
compensation on quantum meruit or any other theory.” Sundquist II, 576
B.R. at 880.
The court also pointed out that, given Ms. Henderson’s failure to
comply with the disclosure requirements of Rules 2016 and 2017, it had the
discretion to disallow all fees, citing Neben & Starrett, Inc. v. Chartwell Fin.
Corp. (In re Park-Helena Corp.), 63 F.3d 877, 882 (9th Cir. 1995). But it
8
At oral argument, Ms. Henderson’s counsel asserted that she had requested a
bonus in her opposition to the Motion to Expunge. We have found no such request.
15
declined to do so because, although Ms. Henderson’s litigation
presentation was barely adequate, it had enabled the court to discern a just
result. Accordingly, the court ruled that it would confirm its original ruling
limiting Ms. Henderson’s compensation to $70,000.
On appeal, Ms. Henderson contends that the bankruptcy court
abused its discretion in: (1) canceling the contingency fee agreement on the
grounds that (I) such an agreement contradicts the structure of § 362(k)(1);
and (ii) Ms. Henderson failed to comply with Rule 2016; and (2) ruling that
the $70,000 fee award was reasonable and that Ms. Henderson was not
entitled to an enhanced fee. She does not dispute the bankruptcy court’s
recitation of the law or its factual findings, but takes issue with how the
bankruptcy court exercised its discretion.
C. The bankruptcy court did not abuse its discretion in canceling the
contingency fee agreement.
1. The bankruptcy court did not err in finding that the
contingency fee agreement at issue in this case was
incompatible with § 362(k)(1).
Ms. Henderson points out that, as recognized by the bankruptcy
court, contingency fees are (in principle) permissible in bankruptcy cases.
Sundquist I, 566 B.R. at 597 (citing § 328(a)). She cites McProud v. Siller (In re
CWS Enters., Inc.), 870 F.3d 1106 (9th Cir. 2017), as support for the
proposition that the bankruptcy court erred in canceling the contingency
fee agreement. In CWS, the Ninth Circuit reversed the bankruptcy court’s
16
determination, in the context of an objection to claim, that contingent fees
awarded in pre-petition arbitration and confirmed in a California judgment
were not reasonable under § 502(b)(4). The Ninth Circuit concluded that
the arbitration award was entitled to issue preclusive effect in the
bankruptcy case, and that, under the facts presented, the bankruptcy court
erred in performing an independent analysis of the reasonableness of the
fees despite the language of § 502(b)(4) that permits the court to limit a
claim for attorney’s fees to the reasonable value of the services. See id. at
1116. The court concluded that “a contingent fee may be reasonable where
it reflects the risk of nonrecovery assumed in accepting a case. In this case,
a lodestar fee would be unreasonable and could not, for that reason, serve
as a cap under section 502(b)(4).” Id. at 1120.
But CWS has little, if any, relevance to this case, where the applicable
statute provides that the attorney’s fees themselves are a component of
damages. Ms. Henderson does not address how the contingency fee
arrangement would work in the context of awarding § 362(k) damages, and
she points to no authority (nor have we found any) addressing the issue.
As the bankruptcy court stated,
[c]ontingency fees for debtor’s counsel in § 362(k)(1) stay
violation disputes . . . present logical difficulties. Attorneys’ fees
are an element of § 362(k)(1) damages. A simple contingency
fee agreement in a situation in which attorneys’ fees are an
element of damages leads to contingency fees on contingency
fees, which would set up a repetitive loop in which fees would
17
increase to infinity.
While it may be possible to draft a debtors’ counsel contingency
fee agreement that might solve the problem described here, the
specific contingency fee agreement in this case does not do so.
Sundquist I, 566 B.R. at 597.
In other words, the bankruptcy court found that the specific
contingency fee agreement in this case was incompatible with § 362(k). The
court did not rule that contingency fee agreements could never be
permissible in the context of § 362(k), nor did the parties seek a ruling on
that issue.9 As noted by the bankruptcy court, there might be a scenario
where the “logical difficulties” could be remedied. But, as discussed below,
the court’s primary concern was that applying a contingency rate to the
recovery in this case would result in a compensation award that would be
grossly disproportionate to the quality of services provided. The
bankruptcy court thus did not abuse its discretion in canceling the
contingency fee agreement.
2. The bankruptcy court did not err in ruling that it could cancel
the contingency fee agreement because Ms. Henderson failed
to comply with Rule 2016.
Ms. Henderson acknowledges that under Park-Helena, the bankruptcy
9
At oral argument, counsel for both parties confirmed that they were not seeking
a ruling on whether a contingency fee agreement could ever be applied in the § 362(k)
context.
18
court has discretion to cancel a fee agreement for violations of Rule 2016,
which requires timely and full disclosure of compensation paid or
promised to be paid. But she argues that the circumstances of this case are
much less egregious than those in which other courts have canceled fee
agreements for failure to comply with Rule 2016. For example, she points
out that the cases cited by the Ninth Circuit in Park-Helena involved
complete failures to provide the fee agreement or misrepresentations as to
the source of compensation. She points out that even though she made her
Rule 2016 disclosures late, the bankruptcy court was not “prejudiced” by
the late disclosures because it still had ample time to consider it before
making its fee award.
Additionally, Ms. Henderson argues that she did not misrepresent
her compensation because she always intended to enforce the full
contingency fee against the Sundquists, and the bankruptcy court
acknowledged that by considering the agreement in awarding fees. But the
bankruptcy court’s consideration of the agreement was limited to
explaining why it did not work and canceling it. See Sundquist I, 566 B.R. at
597.
Ms. Henderson has not demonstrated that the bankruptcy court
abused its discretion in canceling the contingency fee agreement for failure
to provide Rule 2016 disclosures. Ms. Henderson did not state in her
disclosure that she intended to enforce the full contingency amount against
19
the Sundquists. Thus the disclosure to the court was materially defective
because it did not disclose full relevant information. And even if the failure
to disclose was negligent or inadvertent, the court still had the discretion to
cancel the agreement and deny all requested fees. See In re Park–Helena, 63
F.3d at 882. As stated by the court:
The record admits of two possibilities, each of which would, in
the court’s discretion, justify complete denial of attorneys’ fees.
If the undisclosed intention to enforce the full contingency is
not a recent fabrication, then there was a failure to disclose full
relevant information for which all fees may be denied. If the
undisclosed intention is a recent fabrication, then counsel has
lied to the court in a declaration and papers filed in opposition
to this motion for which sanctions are appropriate on a variety
of theories. Either way, this court has the discretion to deny all
fees.
Sundquist II, 576 B.R. at 880. Ms. Henderson simply disagrees with how the
court exercised its discretion; she has not shown that the bankruptcy court
applied the wrong legal standard or made illogical, implausible, or
unsupported factual findings. We find no abuse of discretion in the
bankruptcy court’s cancellation of the contingency fee agreement based on
Ms. Henderson’s failure to comply with Rule 2016.
D. The bankruptcy court did not abuse its discretion in determining
that the $70,000 fee award was reasonable.
In limiting Ms. Henderson’s fees, the court described in detail the
deficiencies in Ms. Henderson’s legal services:
20
Ms. Henderson's performance in this adversary proceeding was
. . . among the ten weakest performances by counsel for debtors
that [the court] has had the misfortune to observe. It was as if
she was in deep water, flailing with beginner strokes.
Ms. Henderson did not prepare a trial brief. Her trial
presentation was disorganized. Her notebook of plaintiffs’
exhibits was slovenly assembled. She demonstrated no
proficient knowledge of the Federal Rules of Evidence or of the
Federal Rules of Bankruptcy Procedure and the Federal Rules
of Civil Procedure incorporated therein. The pretrial
declarations of the Sundquists mandated by Local Bankruptcy
Rule 9017–1 were crude and conclusory in content. She made
no attempt to introduce the Renée Sundquist diary into
evidence, which, ironically, was introduced by way of Bank of
America's marked exhibits and wound up putting important
flesh on the bones. Her questions were amateurish. She showed
no ability to lay a foundation for introducing evidence;
fortunately, most of her proffered exhibits were admitted
without objection to foundation. Her demonstration of the facts
was disjointed and difficult to decipher. She had no coherent
theory of damages. Her closing argument did not connect any
helpful dots. What saved the case for the plaintiffs was that,
while poorly prepared to testify, they were so credible that the
court could not in good conscience let the poor performance by
counsel stand in the way of justice.
One reason this court’s decision took some months to
prepare was that Ms. Henderson had been of no help regarding
the complex facts and legal theories. The process of wading
through all the exhibits in the context of the testimony
consumed time, required reflection, and entailed considerable
research into intricacies of the law of actual and punitive
damages.
21
....
Far from being the result of Ms. Henderson's
performance, the judgment was entered despite her work.
Heretofore, the court has expressed its frustration obliquely
and intended to keep it that way, but her subsequent activity
has forced the court to be explicit so that no appellate tribunal
will be confused.
Sundquist II, 576 B.R. at 868-69.
Ms. Henderson argues that despite these flaws in her trial
preparation, the court still awarded $45 million in punitive damages. She
points out that the bankruptcy court acknowledged that these deficiencies
“merely hindered its preparation of an opinion” but did not cause the court
to reduce the amount awarded. Accordingly, she contends that there was
no reasonable basis for the bankruptcy court to conclude that her
performance at trial was inadequate. She also complains that the court did
not say how much it would have increased the award had it been given
more precise evidence. But this argument is nonsensical because, without
additional evidence, the bankruptcy court could have no basis to know by
how much the damages award may have increased.
Finally, Ms. Henderson argues that even if she is not entitled to the
contingency fee, she is entitled to a bonus because of the risk she assumed
in handling the case and because she obtained an extraordinary result. She
asserts that the bankruptcy court erred as a matter of law by failing to
consider a bonus.
22
But the bankruptcy court did consider whether Ms. Henderson was
entitled to a fee enhancement and, in fact, gave her one. Despite the fact
that Ms. Henderson had neither sought an enhancement above her lodestar
compensation nor proffered specific evidence to rebut the presumption
against a bonus, the court accepted Ms. Henderson’s $300 hourly rate. It
did so despite the fact that it did not believe the quality of her services was
worth $300 per hour; it accepted the rate as an implicit enhancement above
normal lodestar to accommodate the risk of nonpayment. Sundquist II, 576
B.R. at 876.
Ms. Henderson also presents two arguments that she did not make to
the bankruptcy court. First, she argues that she was precluded from
explaining her decisions regarding trial strategy because doing so would
have forced her to disclose privileged attorney-client communications.
Second, she complains that the court did not invalidate the contingency fee
agreement between the Sundquists and their successor counsel. We need
not consider these arguments. See O’Rourke v. Seaboard Surety Co. (In re E.R.
Fegert, Inc.), 887 F.2d 955, 957 (9th Cir. 1989) (appellate court need not
consider arguments on appeal that were not raised sufficiently for the trial
court to rule on them).10
10
In Appellees’ responsive brief and Appellants’ reply brief, the parties argued
other issues raised in the original motion and responsive papers–the validity and/or
voidability of the fee agreement in light of failures to comply with California law, and
(continued...)
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CONCLUSION
The Ninth Circuit Court of Appeals has recognized the potential for
abuse where attorney’s fees are a mandatory element of damages but
concluded that the bankruptcy court’s sound exercise of discretion to
“eliminate unnecessary or plainly excessive fees” would “provide a
sufficient check on any abuses that might otherwise arise.” In re
Schwartz-Tallard, 803 F.3d at 1101. The bankruptcy court has broad
discretion in determining what fees are reasonable under the
circumstances. See Gates v. Deukmejian, 987 F.2d 1392, 1398 (9th Cir. 1992)
(“The district court has a great deal of discretion in determining the
reasonableness of the fee and, as a general rule, we defer to its
determination . . . .”). This Panel affords “considerable deference to the
bankruptcy court’s reasonableness assessment because of its first-hand
experience with the attorney’s services and performance during the course
of the bankruptcy proceedings.” Orian v. Asaf (In re Orian), No. CC-18-1092-
SFL, 2018 WL 6187784, at *8 (9th Cir. BAP Nov. 27, 2018) (citations
omitted). Under this standard, Ms. Henderson carried a heavy burden to
persuade us that the bankruptcy court abused its discretion in canceling
the contingency fee agreement, limiting fees, and expunging her attorney’s
10
(...continued)
unconscionability. The bankruptcy court did not rule on those issues, nor did
Ms. Henderson identify them as issues on appeal. Therefore, we decline to address
them.
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lien. She has not done so. Therefore, we AFFIRM.
25