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In re Riley

United States Court of Appeals, Fifth Circuit

May 13, 2019

In the Matter of: SHARON BOYD RILEY Debtor

          Appeal from the United States District Court for the Western District of Louisiana

          Before REAVLEY, ELROD and WILLETT, Circuit Judges.


         This appeal concerns a dispute between the Bankruptcy Court for the Western District of Louisiana and Chapter 13 debtor's attorneys in that district, with two Chapter 13 trustees representing the position of the bankruptcy court. That dispute involves no-money-down business models, wherein the debtor's attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The appellants contend that when they request their compensation under the bankruptcy court's "no-look fee" arrangement, those three fees should be reimbursable outside of (and in addition to) the permissible no-look fee amount. The bankruptcy court disagreed, concluding that those fees are not only non-reimbursable under the district's no-look fee order, but also that by statute they could never be reimbursed at all. Appellants challenge the bankruptcy court's interpretation of statute and of its own standing order. Holding that the bankruptcy court did not err in interpreting its own standing order on no-look fee compensation, but that it did err in its conclusion that bankruptcy courts lack the discretion to ever award reimbursement of those fees, we AFFIRM in part and VACATE in part.



         Generally speaking, debtor's attorneys seek to have their compensation categorized as an "administrative expense" of the bankrupt estate under 11 U.S.C. § 503. If so categorized, they receive priority in receiving payment from the estate second only to domestic support obligations. See 11 U.S.C. § 507(a).

         Chapter 13 bankruptcy enables individuals with regular income to develop a plan to repay their debts. See generally 11 U.S.C. §§ 1301-30. There are effectively two ways that a Chapter 13 debtor's attorney representing an individual can have the payments owed to them categorized as an administrative expense: (1) if the payments are necessary expenses to preserve the estate under § 503(b)(1); or (2) if the payments are compensation or reimbursement under § 503(b)(2) (which links to 11 U.S.C. § 330(a), which, in turn, under § 330(a)(4)(B), permits "reasonable compensation" for attorneys based on services rendered).

         The default process for determining how much compensation for debtor's counsel is reasonable-and thus how much will be given collection priority as an "administrative expense" of the estate-is a formal fee application with a detailed statement of services rendered and expenses incurred. See Federal Rule of Bankruptcy Procedure 2016(a). However, to fast-track that process for routine cases, most bankruptcy courts have instituted local rules which establish the parameters for requesting the "no-look" payment of attorney's fees. Though the details vary by bankruptcy court, the no-look fee option generally says that if debtor's counsel charges no more than a given amount for a given case, the attorney's fee will be treated as presumptively reasonable under § 330(a), with no need to provide a detailed accounting unless the request is challenged. See 1 Bankruptcy Law Manual § 4:40 (5th ed.) (Dec. 2018 update). This court has approved the practice of bankruptcy courts implementing no-look fee options for compensating debtor's counsel. See In re Cahill, 428 F.3d 536, 540-42 (5th Cir. 2005).


         The Bankruptcy Court for the Western District of Louisiana has a standing order governing such no-look fees for Chapter 13 actions. Prior to February 2017, that standing order explicitly stated that any advances made by debtor's counsel for pre-filing expenses were accounted for in the no-look fee amount and therefore not separately reimbursable. In February 2017, that standing order was amended in a variety of ways. Pertinent to this appeal, the February 2017 order no longer included the provision specifying that pre-filing expenses advanced by debtor's counsel were not separately reimbursable against the estate.

         Appellant Thomas McBride represents Sharon Riley as debtor's counsel in a Chapter 13 action in the Western District of Louisiana. On February 2, 2017-the day after the new standing order went into effect-McBride entered into a no-money-down arrangement with Riley, wherein she agreed to pay him $2, 150.00 for his legal services and an additional $367.00 for advancing the costs of the filing fee, credit counseling fee, and a credit report fee. McBride paid those fees, then-along with other debtor's counsel in the district[1]- requested reimbursement under the no-look fee system (separate from, and in addition to, the permissible no-look fee).

         A Chapter 13 trustee for the district sought clarification from the bankruptcy court as to whether those three fees were now separately reimbursable as administrative expenses of the estate under the no-look fee system. The bankruptcy court held a hearing on the matter in April 2017, and, in September 2017, it issued an order holding that those fees were not separately reimbursable under the new standing order. The bankruptcy court rejected McBride's argument that the new standing order now permitted separate reimbursement of those fees, and it rejected McBride's argument that reimbursement of those fees was mandatory under 11 U.S.C. § 503(b)(1) as expenses necessary to preserve the estate. However, the bankruptcy court then went a step further and stated that even if McBride's application were construed to be a formal fee application (rather than the no-look fee request that it was), the filing fee, credit counseling fee, and credit report fee could never be reimbursable as compensation under § 330(a).

         The bankruptcy court's order denied similar requests in eighteen other cases pending in the district at the time. McBride, joined by debtor's counsel from two of the eighteen other cases, appealed the bankruptcy court's decision to the district court. The district court adopted the reasoning of the bankruptcy court and affirmed its judgment.

         On appeal to this court, McBride and co-appellants repeat the arguments that they made before the district court. Two Chapter 13 trustees from the Western District of Louisiana are technically the appellees in this case; however, their brief generally summarizes the points articulated by the bankruptcy court in its original order.[2] After oral argument, we asked the acting U.S. Trustee for Region 5 whether he took a position on the issues raised in this case, and his brief in response indicated agreement with the bankruptcy court and the Chapter 13 trustees.[3]


         When a district court reviews a bankruptcy court's decision, we review the district court's decision by applying the same standards that were applied by the district court. In re Scopac, 624 F.3d 274, 279-80 (5th Cir. 2010). We generally review the award of attorney's fees for abuse of discretion. In re Coho Energy Inc., 395 F.3d 198, 204 (5th Cir. 2004). However, the legal conclusions underlying a determination of attorney's fees are reviewed de novo. Id. When we review a bankruptcy court's interpretation of its own orders, purely legal questions are reviewed de novo. In re Nat'l Gypsum Co., 219 F.3d 478, 484 (5th Cir. 2000). As such, the parties agree that the standard of review for all issues in this appeal is de novo.


         On appeal, McBride argues that the bankruptcy court and district court committed legal error in three ways: (1) by concluding that the fees are not reimbursable under the February 2017 no-look fee standing order; (2) by concluding that the fees are not reimbursable as necessary expenses to preserve the estate under 11 U.S.C. § 503(b)(1); and (3) by concluding that the fees could never be ...

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